Dollar Falls Again in Egypt: Will the Downtrend Continue?

Dollar Falls Again in Egypt: Will the Downtrend Continue?

The US dollar has declined again against the Egyptian pound during Thursday trading, approaching the 48 EGP mark, driven by increased foreign currency inflows.

Mohamed Abu Basha, Chief Economist at EFG-Hermes Research, stated that this decline is supported by strong foreign investments in Egyptian debt instruments and the sale of dollars by companies and individuals, amid continued depreciation against the pound and other currencies due to recent customs decisions.

Egypt's foreign currency reserves rose to $49 billion by the end of July, fueled by a 22% increase in tourism revenues in the first half of the year to reach $8 billion, and a 25% rise in the number of tourists to 8.7 million. The government aims to welcome 18 million tourists by year-end, potentially exceeding previous revenue estimates.

Banking Measures and Investment Incentives

The Central Bank removed the requirement to provide travel data for using credit cards abroad, while major banks such as National Bank of Egypt, Banque Misr, and CIB reduced foreign currency transaction fees from 5% to 3%, and increased the maximum purchase abroad to $10,000.

The government collected about one-third of the target for local debt issuances in the current fiscal year during July alone, totaling over EGP 1.11 trillion, amid strong demand from foreign investors and local banks seeking high interest rates.

Current key interest rates stand at 24% for deposits and 25% for overnight loans, following two reductions since early 2025 totaling 325 basis points, marking the first cut in over four and a half years.

External Factors Supporting the Pound

The pound also strengthened due to improved risk appetite in emerging markets, supported by US inflation data for July aligning with expectations, boosting the likelihood of a Federal Reserve interest rate cut in the upcoming meeting.

Mohamed Abu Basha expects the average exchange rate of the pound against the dollar in 2025 to reach around 48 EGP, likely rising further with ongoing foreign investment inflows and improving economic indicators.

A Combination of Factors Behind Dollar Decline

Economist Medhat Nafea attributed the recent drop in the dollar to a mix of domestic and international factors, along with psychological and behavioral market effects.

Local improvements, including rising net foreign assets to about $15 billion (up from $10 billion in February) and better foreign reserves and current account balance (up 50% in Q2 2025), supported the pound. Reduced import pressure, controlled public spending, domestic tourism growth, and easier access to dollars for travelers also contributed.

Nafea stressed that the current decline in the dollar will not continue without sustained improvement in inflation, narrowing the gap between nominal interest rates and inflation, reducing the non-oil trade deficit, achieving a fiscal surplus, and addressing internal and external deficits.

Local Market Exchange Rates

In local banks, dollar rates showed minor fluctuations, with Abu Dhabi Islamic Bank offering the highest purchase at 48.32 EGP and sale at 48.42 EGP, while National Bank of Egypt recorded 48.28 EGP for purchase and 48.38 EGP for sale, similar to CIB rates.

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