Only way is down for Egyptian currency, and question is how much


Only way is down for Egyptian currency, and question is how much

A currency that the world’s biggest banks say is too expensive likely leaves Egypt few options besides allowing it to weaken further.

A greater flexibility in the pound has emerged as an issue for Egypt as the government looks to clinch a new loan from the International Monetary Fund. In the view of Deutsche Bank AG and Goldman Sachs Group Inc., the currency is about 10 percent overvalued, as measured by its real effective exchange rate, while Citigroup Inc. has a lower estimate of 5 percent.

Urgency is building for the $400 billion economy despite a devaluation of more than 15 percent in March. The dollar’s rally since then has weighed on the currencies of its trading partners and other developing peers, while energy and food shocks from Russia’s invasion of Ukraine strained Egypt’s finances.

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The pound needs to weaken about 23 percent to help the economy adjust and reduce Egypt’s funding gap, according to Bloomberg Economics.

Derivatives traders are also pricing in further declines, even after Egypt’s currency posted 11 weeks of losses in the offshore market, its worst streak in almost a decade. In the non-deliverable forwards market, the