Why the US Dollar is Rising Against the Egyptian Pound: Key Economic Factors

• Sulaiman
• . November 8, 2024
• . Update: November 8, 2024 4:11 pm
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Concerns in both domestic and international markets have been generated by the US dollar’s recent increase in value against the Egyptian pound. Economists have pointed out local as well as worldwide elements impacting the currency rate. Apart from influencing trade and investment patterns, this phenomena is aggravating Egypt’s already stressed economy.

Reasons Behind the Increase of the US Dollar

The recent increase in the value of the US dollar is mostly attributed to the Federal Reserve of the United States. Aimed at lowering inflation, the consistent interest rate increases of the central bank have made the dollar a more appealing asset for international investors. The demand for the US dollar has therefore soared, increasing its value versus currencies in developing nations such Egypt. The tightening monetary policy of the Federal Reserve has caused a change in global investment flows, which reduces the appeal of the Egyptian pound to US investors seeking bigger returns.

Egypt is suffering most from growing prices since it depends mostly on imports to satisfy its own needs. The nation is under more pressure on its currency since a good number of these imports are US dollar valued. Egypt’s foreign reserves are further taxed by the skyrocketing cost of oil, which is vital for transportation and energy generation. Another important good that has been more costly is gold, which fuels demand for dollars and helps to devalue the Egyptian pound.

Trade Balance Affecting the Weakening Pound

The widening trade deficit is also a major contributing reason to the devaluation of the Egyptian pound. Egypt’s demand for foreign currency is greatly distorted since its imports much outweigh its exports. This trade deficit has raised the demand for dollars, therefore stressing the pound more. The demand for the US dollar increases as the nation keeps importing more goods than it exports, therefore aggravating the trend of devaluation of the currency.

High commodity prices and this trade deficit have made Egypt increasingly susceptible to swings in the world economy. Apart from the disturbances in the global supply chain brought about by the COVID-19 epidemic, these elements have made it challenging for the Egyptian economy to recover since the nation experiences increasing cost of living and higher inflation.

Government View on Variations in Currency Value

Egypt’s administration has made it abundantly evident despite these difficulties that there are no immediate intentions for a significant devaluation of the Egyptian pound. Prime Minister Mostafa Madbouly has said, according to Cabinet Spokesperson Counselor Mohamed al-Hamasy, Egypt would not experience another “significant flotation” akin to that which occurred last March. Rather, the government has taken a more slow approach, enabling a flexible exchange rate that reacts to supply and demand.

Al-Hamasy underlined in a phone-in to the “Sala al-Tahrir” program that changes in the exchange rate are normal in every global economy and are affected by both internal and foreign elements. Emphasizing that the state is dedicated to keeping a flexible exchange rate policy in line with the Central Bank, he said Despite the drop in Suez Canal income, the aim is to control Egypt’s foreign currency demands by means of several dollar resources.

The government is looking at other foreign exchange sources in order to offset the pressure on the pound. These comprise travel, income from exports, and remittances from Egyptians employed elsewhere. Egypt has historically depended on remittances from its expats, and given the country’s key tourism attractions still attract foreign visitors, tourism remains a major driver of the economy. Furthermore crucial for Egypt’s monetary condition is its initiatives to increase exports and draw foreign direct investment (FDI).

Al-Hamasy said Egypt would keep offering foreign exchange resources from these sources under cooperation with the Central Bank. The government’s strategy seeks to boost the economy without using extreme policies meant to cause more instability of the value of the currency.

Foreign Reserve Increase

The fresh rise in Egypt’s foreign reserves is one encouraging sign. At the end of October, the Central Bank of Egypt (CBE) declared that its net foreign reserves came out to be $46.94 billion, a $200 million rise from last month. Although this is encouraging, it is significant to observe that Egypt’s reserve makeup has altered. The value of foreign currencies inside the reserve dropped somewhat to $35.497 billion, but the value of gold reserves rose to $11.154 billion, indicating a calculated turn toward more steady assets.

For Egypt’s economy, the increase of foreign reserves is absolutely vital since it offers a shield against the continuous pound devaluation. By means of intervention in the currency markets, a bigger foreign reserve enables the Central Bank to stabilize the pound and guarantee sufficient liquidity for the demands of the foreign currencies.

The value of the Egyptian pound has stayed rather constant versus the US dollar in recent days despite changes in the world economy and pressures on its currency. The most recent official figures show that the Central Bank of Egypt has set the dollar exchange rate for purchase at LE49.24 and selling at LE49.34. Several of Egypt’s leading banks, including Cairo Bank, Bank of Egypt, and National Bank of Egypt, have reflected this steadiness; all of them have had rather constant currency rates.

With buying rates between LE49.22 and LE49.25 and selling rates about LE49.32 to LE49.37, the Suez Canal Bank, Crédit Agricole Egypt, and other regional banks have likewise reported similar rates. This regularity gives some comfort to domestic and foreign stakeholders since it signals a time of rather stability.

The complicated interaction of domestic and foreign elements explains the increase in the value of the US dollar against the Egyptian pound. Although Egypt’s trade imbalance, US Federal Reserve’s interest rate hikes, and global commodities price rises all help to explain the pound’s devaluation, the Egyptian government is dedicated to handling the matter with a flexible exchange rate strategy. Egypt is using a multifarious strategy to stabilize its economy and currency with growing foreign reserves and ongoing attempts to boost remittances, exports, and tourism. The road forward for the nation will probably be one of balancing these obstacles in order to aim for stability and long-term economic development.