In: Economics
I need a really detailed answer
Egyptian Pound went through some volatility since it was floated in November 2016 until today. This could be broken down in 4 main phases as follows:
Phase 1: From floatation till June 2018
Phase 2: From June 2018 - December 2018
Phase 3: From January 2019 - February 2020
Phase 4: Coronavirus worldwide outbreak
what happened during each of the above 4 phases and in full details how these factors impacted the EGP exchange rate versus the Dollar?
Solution :
Less than a week after the currency float decision, the Egyptian Exchange (EGX) hit a five-year high. Foreign investors and institutions, including Gulf-based investors, were on the buying side, merely locals and retail investors were sellers. This is a quick and strong sign of a renewed confidence that international and regional investors have in Egypt as an economy. It is apparent that undoubtedly large growth is expected over the long term, bolstered by a free economic system.
Undoubtedly, in the simplest terms, Egypt has become a more affordable destination than before - be it as a travel or investment destination. Both will lead to an inflow of foreign currency and Foreign Direct Investment (FDI) into the market and increased economic activities (reducing unemployment, increasing GDP, etc). There is a time lag, however, as investors will only start coming once they feel that the USD: EGP rate has reached stability and that the speculation/high volatility period is coming to an end.
The EGP is currently trading at close to EGP 16 to the dollar having appreciated 16% this month. Although further volatility is expected in the short term, it is expected to strengthen further and reach its fair value over the medium term. The IMF also expects inflation to drop in the second half of the year and push down interest rates to permit credit recovery.
Experts anticipate that the worldwide spread of the novel coronavirus will increase the US dollar’s exchange rate against the Egyptian pound. Economist and stock market expert Wael al-Nahhas said that the virus’s impact on Egypt is the same as the rest of the world. Investment banks also described fears of the negative impact of indirect investments exiting from emerging markets, including Egypt, up until control of the coronavirus expected to occur this summer.