Egypt’s Pound and Stocks Plunge Amid Worsening Middle East Conflict
Egypt’s currency weakens significantly as stock market tumbles amid escalating Israel-Iran conflict. The pound reached 50.74 per dollar, while the EGX30 index fell by 7.7%. Egypt’s economy strains under the pressures of geopolitical upheaval and declines in sovereign bonds, prompting concerns over potential capital outflows and future interest rate holds.
In a troubling turn of events, Egypt’s pound has seen a sharp decline while its stock market faces its steepest drop in five years, catalyzed by the intensifying conflict between Israel and Iran. As of Sunday at 12:45 p.m., the pound was exchanging at 50.74 per US dollar, down noticeably from around 49.8 in the previous week. This economic strain coincided with Egypt’s benchmark EGX30 index plunging by as much as 7.7% — it was the market’s first trading day following Israeli airstrikes against Iranian facilities.
This economic turmoil is particularly alarming for Egypt, which is heavily reliant on imports and is striving to stabilize its economy after obtaining a global bailout totaling $57 billion. Following the recent airstrikes, Egypt’s sovereign dollar bonds, alongside those from Israel and Jordan, experienced significant losses, highlighting the adverse impacts of geopolitical tensions on emerging markets. Notably, Egyptian 2059 notes registered a 1.5 cent loss per dollar, marking their most considerable single-day dip since April, following what was a brief rally.
Investment banking firm EFG Hermes reported around $500 million had been pulled from the local debt market on Thursday alone, largely attributed to the U.S. decision to withdraw some diplomatic staff from the region. In a note, EFG Hermes’ head of macro analysis, Mohamed Abu Basha, predicted that ongoing geopolitical strains could further weaken the pound and instigate additional capital outflows in the upcoming days. This situation may also influence the central bank’s decisions regarding interest rates at its forthcoming meeting on July 10.
The impact of this escalating conflict is evident as Israel has temporarily halted operations at its largest natural gas field, curtailing supplies to Egypt. Consequently, Egyptian authorities have reduced gas supplies to certain sectors and have resorted to utilizing diesel in some power facilities. Additionally, the planned opening of Egypt’s flagship antiquities museum, originally scheduled for July 3, has been postponed until later this year as the situation unfolds.
Since allowing the pound to depreciate about 40% in March 2024 to alleviate a persistent foreign-exchange deficit, investors have kept a close eye on Egypt’s currency. This strategy is essential to meet the conditions of the International Monetary Fund’s $8 billion loan program, which emphasizes maintaining a flexible exchange rate. The current stock market decrease represents the most significant fall since March 2020, with EFG Holding’s stock plummeting around 12% by 11 a.m. on Monday, and property developer Talaat Moustafa Group dropping by 5.3%.
In summary, as Egypt navigates a series of economic hurdles against the backdrop of escalating tensions in the Middle East, the implications for both its currency and stock market could be profound. The financial landscape remains precarious as stakeholders anticipate the unfolding of events and their subsequent effects on the nation’s economy.
The Egyptian pound and stock market are under severe pressure amid rising tensions in the Middle East, particularly from the Israel-Iran conflict. The pound has depreciated significantly, and the stock market has witnessed its most considerable drop in five years. With Egypt grappling to stabilize its economy following a hefty global bailout, the outlook remains uncertain. Investors are watching closely for further developments that might influence the economy and financial markets.
Original Source: www.livemint.com
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