USD/EGP forecast: Egyptian pound testing $20 mark amid soaring inflation
The Egyptian pound (EGP) depreciated further and crashed to a near 6-year low in August against the US dollar (USD) amid deepening deficits and dwindling international reserves.
The US dollar/Egyptian pound rate spiked above 19 on 2 August and has stayed at that level since. The USD/EGP hit a high of 19.1752 on 9 August and has slightly retraced to 19.1488 on 11 August. Still, the US dollar/Egyptian pound rate is at its highest since December 2016.
Are you interested to learn more about the Egyptian pound against the US dollar and the factors impacting the exchange rate? Read the latest analysis of the pair’s performance and analysts’ USD/EGP predictions.
What is USD/EGP?
The USD/EGP forex pair refers to the exchange rate for the US dollar, the base currency, against the Egyptian pound, the quote currency. The exchange rate shows the value of one US dollar in Egyptian pounds.
The US dollar is the currency of the world's largest economy, the United States. The currency is considered a safe-haven asset and attracts investment in times of uncertainty, which could boost the value of the currency. The perfprmance of the US dollar is driven by macroeconomic factors such as interest rates and inflation.
The Egyptian pound is the currency of the North African country Egypt. As Egypt relies heavily on grain imports and the economy remained unstable following the outflow of investments, the currency’s value is driven by the country’s net reserve and trade balance.
USD/EGP analysis: Drivers behind Egyptian pound depreciation
The Egyptian pound value has been largely stable over the past two years and the USD/EGP rate only briefly breached the 16 level for 1.5 month in June 2020. The recent volatility was triggered by the war in Ukraine, and rising inflation brought about by spiralling commodity prices.
The Egyptian pound’s depreciation started in mid-March after Russia invaded Ukraine on 24 February. The currency was trading between 15.6-15.76 against the US dollar in 2021, but the currency pair exchange rate spiked to 18.2175 on 22 March, up 15.7% from the previous day.
This depreciation was due to the Egypt Central Bank’s policy to raise interest rates by 100 basis point (1%) to curb inflation and limit large-scale portfolio outflows that were causing foreign reserve losses.
The Egyptian pound depreciation continued in the subsequent months, and USD/EGP breached the 19 level in early August and remained at that level as Egypt’s economy deteriorated.
Egypt’s main sources of revenue and foreign currency are from exports, remittances, tourism, foreign direct investment (FDI), and Suez Canal fees. Following Russia’s invasion of Ukraine on 24 February, Egypt’s tourism and FDI revenue were severely hit.
The Red Sea resort is a popular holiday destination for Russian and Ukrainian visitors.
In addition, foreign investors pulled out billions of dollars from the Egyptian treasury market in early March. The high interest rates offered by the Egyptian bond market attracted billions of investments at the beginning of this year but investors liquidated their holdings to reduce exposure to emerging markets amid geopolitical turmoil and heightened risk-aversion.
This significantly reduced Egypt’s revenue and foreign currency reserves. To further compound matter, Egypt is the world’s largest wheat importer by volume, and it relies heavily on exports from Russia and Ukraine.
According to the trade and economic data provider Observatory of Economic Complexity (OEC), Egypt imported $5.2bn of wheat in 2020, and Russia and Ukraine accounted for 62% and 23.5% of those imports, respectively.
Wheat exports from Ukraine were largely halted in the months following the war, causing global wheat prices to soar to record-highs. The high wheat price dramatically pushed up Egypt’s import cost, leading to a widening trade deficit.
As global commodities contracts are US dollar denominated, the strong US dollar over the past year has squeezed Egypt's buying power.
The US dollar strength is supported by the Federal Reserve’s hawkish monetary policy to continue with interest rate hikes this year. In late July, the Fed announced its fourth consecutive rate hike with the federal funds rising to 2.25-2.5%, up 75 basis points from the previous rate.
Middle East economist Pascal Devaux at French bank BNP Paribas said in March:
Dwindling international reserve, widening account deficit
As a result of higher commodities prices and lower foreign currency revenue in Egypt, the North African country’s net international reserve has been falling this year to the lowest level since 2017.
According to data from the Central Bank of Egypt (CBE), the net international reserve as of May 2022 was at $35.5bn, down 13.4% compared to early 2022, and the lowest level since 2018. The last time Egypt’s international reserve fell below $40bn was in 2017, slumping to the $31.3bn level.
Egypt’s account deficit is also expected to widen in 2022 as import costs exceed the country’s income.
Egypt seeks new loan from IMF
In response to the growing economic crisis in Egypt, the country’s government sought a new loan of undisclosed value from the International Monetary Fund (IMF) in March.
An IMF team met with the Egyptian government in late June to discuss the extended fund facility but there is no agreement to-date.
In June 2020, the IMF approved a 12-month Stand-by Arrangement for Egypt with a facility sum of $5.2bn for the North African country’s balance of payments financing needs arising from the Covid-19 pandemic.
Egypt’s outstanding purchases and loans as of 30 June reached $13.7 billion, IMF data showed.
USD/EGP forecast for 2022 and beyond
The combination of widening deficit and falling foreign exchange reserves had hit investor sentiment in Egypt, leading to a bearish USD/EGP forecast. As a result of the deteriorating economic conditions in the country, many analysts believe the currency cpi;d stay depressed around the six-year low in the short-to-medium term.
In its USD/EGP forecast 2022 as of 12 August, economic data provider TradingEconomics projected the currency to trade at 19.46 by the end of the third quarter of 2022, and to rise to 20.71 in the next 12 months.
Meanwhile, algorithm-based Wallet Investor’s USD/EGP forecast suggested the rate could trade at 19.216 in the next 12 months, rising to 19.653 by 2027.
Independent economic research provider Capital Economics expected the value of Egyptian pound to fall further against the US dollar, reaching around $25 by the end of 2024.
According to Gov.capital’s USD/EGP forecast for 2025, the algorithm-based predictions provider expected the currency pair exchange rate to spike to the 52.5-77.0 range in 2025.
Due to the uncertainty of the geopolitical development and the related market volatility, analysts and algorithm-based prediction sites have refrained from providing USD/EGP forecast for 2030.
Note that analyst and algorithm-based predictions can be wrong. Forecasts shouldn’t be used as a substitute for your own research. Always conduct your own due diligence, looking at the latest news, fundamental and technical analysis, and analyst commentary.
Remember that past performance does not guarantee future returns, and never trade money you cannot afford to lose.
FAQs
Why has USD/EGP been rising?
The USD/EGP exchange rate has been rising as the Egyptian currency depreciated after the Egypt Central Bank raised the interest rate in March. The currency’s value was also weakened by Egypt’s widening deficit and falling foreign exchange reserves.
Will USD/EGP go up or down?
No one can say for sure. In a note published on 1 August, independent economic research provider Capital Economics suggested that the value of Egyptian pound could fall further against the US dollar, reaching around $25 by the end of 2024. However, analyst USD/EGP forecasts. You should always conduct your own research.
When is the best time to trade USD/EGP?
The best time to trade USD/EGP would be from 5pm EST on Sunday to 5pm on Friday. When one or more of the forex markets (New York, Tokyo, Sydney and London) are open simultaneously, the market will be at its most active, which will provide liquidity for trading.
Is USD/EGP a buy, sell or hold?
Many investors have limited their exposure to emerging market currencies amid a depressed economic outlook and market volatility. Only you can decide if the currency pair is a buy, sell or hold, depending on your risk tolerance, investing goals and other personal circumstances.
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