The recent strengthening of the Egyptian pound (EGP) against the US dollar towards the end of last week’s trading was not merely a random fluctuation or a simple market reaction to easing geopolitical tensions and cautious optimism over a potential lasting peace.
In my view, beyond these external factors, the exchange rate flexibility framework adopted by the Central Bank of Egypt since March 2024 has played a decisive role in stabilising the currency. Operating with a greater degree of neutrality and transparency, this framework has helped maintain equilibrium in the foreign exchange market.
When global headlines were dominated by escalating tensions, including drone and missile activity, the Egyptian pound—like many other currencies—came under pressure against the US dollar. Conversely, with the announcement of a ceasefire and a relative easing of hostilities, the pound rebounded.
This movement reflects a swift market response to improving conditions, particularly the easing of tensions in the Strait of Hormuz and rising prospects for successful regional negotiations.
The pound is now beginning to reap the benefits of exchange rate flexibility, which allows it to respond symmetrically to both shocks and positive developments. This has strengthened confidence among domestic and international investors in the currency’s ability to absorb volatility, reduced the likelihood of a parallel foreign exchange market, and reinforced the interbank market as the unified platform for FX trading in Egypt. In relative terms, the pound has also become more attractive from a risk-return perspective compared to several peer currencies.
Expected exchange rate scenarios
- “Peace” scenario – successful negotiations and stable navigation
Timeframe: One to three months
Range: EGP 46-48 per US dollar
Under this scenario, a sustained de-escalation would support a recovery in Suez Canal revenues, alongside a decline in shipping and insurance costs. This, in turn, would likely encourage stronger foreign inflows into Egyptian debt instruments, particularly through carry trade strategies.
- “Cautious calm” scenario – prolonged negotiations with limited tensions
Timeframe: Through Q2 2026
Range: EGP 48-49.5 per US dollar
In this case, markets would remain in a wait-and-see mode. The pound would be supported primarily by internal FX sources, including remittances and tourism revenues, without significant external inflow momentum.
Broader macro and policy implications
The positive spillovers extend beyond the exchange rate itself.
Lower global oil prices would ease pressure on Egypt’s import bill, reducing demand for US dollars to finance fuel imports and helping to narrow the fiscal deficit.
At the same time, a softer global dollar environment and declining import costs could ease both imported and domestic inflationary pressures. This may create room for the Central Bank of Egypt to gradually shift from a holding stance towards a monetary easing cycle, potentially initiating interest rate cuts that would support investment activity.
From a structural perspective, stable foreign reserves and a continued recovery in remittances from Egyptians abroad—now increasingly channelled through official banking channels—provide an important buffer against future external shocks.
Mohamed Abdel Aal – Banking expert
The post Opinion | The Egyptian pound: Between stability gains and cautious outlook first appeared on Dailynewsegypt.