Egypt's pound has become the world's best-performing currency after oil prices dropped sharply on a US-Iran agreement to reopen the Strait of Hormuz, a move expected to restore supply flows and ease inflation concerns.
The Egyptian currency has risen about 4% against the dollar since Friday, outperforming all global peers. It strengthened past 50 per dollar for the first time since March 3 on Wednesday and is up more than 7% since early May, also the best currency performance worldwide over that period.
The pound had come under pressure after the war with Iran began in late February, as surging energy prices threatened to strain Egypt's budget and raise costs for a population already worn down by years of elevated inflation.
“In the short term, what people look at is who the laggards have been, and Egypt is the obvious one,” said Thys Louw, a portfolio manager on Ninety One's emerging-markets team in London. “I would not be surprised if the Egyptian pound heads back somewhere close to where it was pre-crisis.”
Photo Credit: Bloomberg
The pound traded at around 47.9 per dollar in the week before the war began.
Louw said Egypt's dollar bonds were also among the “most beaten up” during the war and are now rallying as investors return. “I think that will continue to see inflows,” he said.
Oil has slumped 15% over the past four trading sessions on bets that a US-Iran deal to reopen the Strait of Hormuz will unleash fresh supply and ease inflation concerns, particularly for energy importers like Egypt. The decline has supported risk appetite across emerging-market assets.
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Egypt's dollar-denominated bonds have risen more than 3% on average since the agreement was announced, making them the fourth-best performers in emerging markets, according to data compiled by Bloomberg.
Earlier this week, Citigroup strategists recommended buying Egypt's local-currency bonds, citing hopes that a US-Iran agreement would ease oil-price pressures on the North African economy.
Enacting a flexible exchange rate is a key component of Egypt's expanded $8 billion International Monetary Fund loan program that concludes this year. The lender is currently conducting its seventh program review, the passing of which this summer would unlock another tranche of about $1.6 billion.
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