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Egypt pound weakens, some see cbank buying dollars
Bank seen building currency reserves ahead of elections.
October 20, 2010 8:41 by Reuters
The Egyptian pound traded as low as 5.7360 to the dollar on Tuesday, its weakest in three and a half years, with analysts saying the fall may be due to the central bank stepping up its buying of foreign currency.
The analysts said the central bank appeared to want a weaker pound to make Egyptian exports more competitive and to build reserves to hedge against investor concerns about Egypt’s future leadership as elections loom.
“We think that the central bank is actively purchasing foreign currency and trying to weaken the pound,” said a strategist at BNP Paribas, who asked not to be named.
Currency’s pressures have been building around the globe with low interest rates in the West leading investors to pour cash into emerging markets, driving up their currencies and potentially hurting their economies.
Egypt’s official foreign reserves have climbed steadily, reaching $35.53 billion at the end of September, a new high. But analysts say the bank also seemed to be building up separate funds that did not immediately appear in official figures.
“If you look at those (hidden reserve) figures you can see those reserves increasing at a higher rate than the headline official figure, which indicates they are purchasing currency in the market,” the strategist added.
The pound was also tracking the euro, which has been sliding against the dollar , one trader said.
Egypt has scheduled a parliamentary election in November and a presidential poll in late 2011.
President Hosni Mubarak’s ruling party is widely expected to win a big majority in parliament again. But the vote is being watched to see how much space is given to the opposition, which regularly complains about voting abuses.
Mubarak, 82, has not said if he will run for office again. Rumours about his health have added to uncertainty, although the president has resumed his schedule of meetings and trips.
(Reporting by Tom Pfeiffer and Patrick Werr; Editing by Hugh Lawson)