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Egyptian pound devalues and death cross threatens the dollar

Business Middle East

Egyptian pound devalues and death cross threatens the dollar


The Egyptian pound has been devalued and the US dollar index continues to struggle. The Central Bank of Egypt is struggling due to a dollar shortage, a significant debate on the weakening of the Egyptian pound. Two devaluations in one week resulted in divided views on this decision. For some it is an important step to attract foreign investment. Others see it as a major obstacle to importing goods.

Egyptian pound devalued

Egypt has devalued the Egyptian pound twice in the past week. On Thursday the Central Bank devalued the pound by 10 piasters, up from 7.73 to 7.83 pounds to the dollar. On Sunday, the bank weakened the pound again at an auction, dropping the value from 7.83 to 7.93 pounds per dollar.

The Egyptian government is seeking to boost foreign investment and revive tourism. But devaluation has a big effect on the daily lives of Egyptians, regarding food and fuel prices with high prices of imports. While the Egyptian government is fighting the black market, it could receive a loan worth 3 billion dollars to support the Egyptian state’s general budget, as Egypt’s Finance Minister, Hany Kadry Dimian, announced .

Foreign currency reserves declined from $36 billion before the 2011 uprising to $16.335 billion by the end of last September

For more on the Egyptian pound and the dollar index, euronews’ Daleen Hassan spoke to Nour Eldeen Al-Hammoury, Chief Market Strategist at ADS securities in Abu Dhabi.

Daleen Hassan, euronews: “How effective is the decision to devalue the Egyptian pound, with the foreign exchange crisis deepening and the black market as well?”

Nour Eldeen AL-Hammoury:“It’s too early to say there is a real crisis in Egypt. However, the Egyptian Central Bank is just like other central banks around the world, who devalued their currencies throughout the year in order to support their economies by increasing exports and inflation. Egypt in the current situation is still stable, especially after some years of uncertainty and instability. Therefore we believe this is a positive step and could be effective in the medium term. We don’t forget that the global economic slow-down is still seen as a drag on the Egyptian economy.

Daleen Hassan, euronews: “How does this affect the Egyptian stock market?

Nour Eldeen AL-Hammoury:“The EGX30 Index is still under pressure following the recent sell-off in global equities. We don’t think the Central Bank decision is good news for the market, especially as the uncertainty remains toward global equities. Moreover, the declining Egyptian pound with the continuous global economic slowing down would not be good news for corporate earnings.”

US dollar falls against global currencies basket

The dollar fell sharply last week to levels not seen since Black Monday, due to negative US data and faded expectations for a US interest rate hike this year. There have been significant losses in the dollar index against the currencies basket since the beginning of October.

Analysts have warned that dollar’s sharp decline could continue due to the formation of a model called the death cross in the dollar index last week. It is a negative sign marking the end of the up trend of the dollar.

Daleen Hassan of euronews discussed it with Nour Eldeen AL-Hammoury: “Last week we saw the formation of death cross in the dollar index. Could it be good news for the stock market?”

Nour Eldeen Al-Hammoury: “The death cross happens once in a few years and this formation is very rare. This pattern is when the 50 Day Moving Average crosses below the 100 and the 200 Day Moving Averages. The global equities, especially the US equities, had a notable negative correlation with the US Dollar last week.

“However, what’s concerning us now is corporate earnings, which came in less than expected so far. Moreover, overall EPS (Earnings Per Share) is set to decline by -5.0%. Many banks’ earnings were disappointing compared to the previous quarter. Therefore if the economic releases keep disappointing with lower corporate earnings, this might keep the positive correlation between the Dollar and US equities.”
Daleen Hassan, euronews: “What are the levels to watch in dollar index?”

Nour Eldeen Al-Hammoury: “In the next few weeks, traders need to keep an eye on level (94 ) in the US Dollar Index, as a break through that support is likely to lead to another decline toward Black Monday’s lows around 93.30. Moreover, a breakthrough that support may clear the way for further declines in the short and the medium term.

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