The ouster President Mohamed Morsi has failed to produce a decline in Egypt's monetary unit, the Egyptian Pound (EGP.) USD/EGP remained remained largely unchanged Wednesday, trading at 7.0302, a mere fifty pip increase over Tuesday's close. Egypt's Central bank conducts daily auctions for US dollars to satisfy exporter demands for foreign exchange. Egypt's pound depreciated marked, sliding from six to seven to the dollar early this year.
Despite today's political turmoil, the lack on movement in the currency is not surprising. Unlike other emerging markets, Egypt's bond and equity markets had not been flooded with foreign money chasing yield. Massive outflows remain unlikely unless wealthy Egyptians begin to move money abroad. Given the turmoil of the past few year, many had presumably already done so.
From this odd turn of events, we can draw two important lessons. First, fundamentals quickly become priced into all asset classes. Over the past few months, the EGP began to slide as Morsi's government lost credibility. The Pound's decline based on political unrest was thus already reflected in market exchange rate. Secondly, while Egypt's fundamentals may has worsened, its technicals have not. With very few foreigners in the market, the outflows can only come from within. Despite today's troubles, locals seem happy to hold onto their Pounds, for now.
No comments:
Post a Comment