Egyptian pound strengthens on renewed foreigner interest

Egypt's pound reached its strongest against the dollar since 22 June on Monday, with forex traders citing foreign interest in recent Egyptian Treasury bill sales and Electrolux's purchase of Egyptian appliance maker Olympic Group. "We saw some foreign players selling dollars in the market. We believe they may be showing interest in local T-bills," says the head of foreign exchange at one Egyptian bank. T-bills yields have started to fall since an auction was cancelled last week as investors demanded higher returns. The average yield on nine-month notes dropped 21 basis points from last week’s auction, to 12.681 per cent. "As the year progresses and the foreign money starts coming in yields will come down," Richard Fox, London-based head of Middle East and Africa Sovereigns at Fitch Ratings, was quoted as saying by Bloomberg. “There may not be huge downward pressure, but at least the upward pressure should dissipate.” The drop in yields suggests a revived interest in t-bills by foreign investors. Such an interest could be the result of the government's shift towards austerity demonstrated in its cuts in the budget deficit to around 8.6 per cent, down from 11.1 per cent. A senior London based senior economist at Exotix Ltd, Gabriel Stern, rated Egypt’s three and six months securities “buy” on Monday. Stern also rated Egypt’s pound-dominated Eurobond maturing in July 2012 “buy”. Electrolux's Olympic purchase, which had been delayed because of Egypt's popular uprising, "may be having some effect too," the trader says. "This may be the first step in an FDI move back into Egypt after the revolution". Traders note that the pound is still trading in a narrow range against the US currency and that the central bank has been spending less of its dollar reserves month on month, suggesting that nervousness among investors towards Egypt is abating. Indicative prices put the pound at around 5.949 at 6pm.