CAIRO: Egypt's pound strengthened on Sunday after the International Monetary Fund approved a $12 billion loan the government hopes will help restore investor confidence and stabilise the currency.
The pound traded at 15 to 16 against the dollar at 1:59 p.m. local time (1159 GMT), up from around 16.3 to 16.8 on Thursday, in line with a newfound appetite among investors who saw the stock market enter its 12th straight session of gains.
Egypt floated the pound on Nov. 3 in a dramatic move welcomed by businesses as the key to unlocking investment.
It devalued the currency by about a third from the former peg of 8.8 against the dollar and allowed it to drift lower. A severe shortage of dollar liquidity when markets opened for the first time after the float had resulted in low volumes and saw the pound weaken to 18 versus the dollar.
The currency began to recover on Wednesday, after IMF Managing Director Christine Lagarde said she would recommend that the international lender approve the deal.
It strengthened again after the IMF approved the agreement on Friday and disbursed the first $2.75 billion instalment. "We believe that such a positive vote of confidence and with the upcoming influx of foreign aid noted above will ease the current obsession about the EGP/USD intraday and daily fluctuations," Pharos Holding said in a note to clients.
"However, while the IMF 'seal of approval' will help Egypt unlock much-needed foreign inflows, it is still within the hands of the government to revive the country's economy."
While banks have been buying dollars to supply clients, a shortage of dollar liquidity in the banking system as a whole means interbank trading is off to a slow start.
Under the currency peg, dollar supplies were rationed by the central bank, forcing businesses to go to the black market for foreign currency. Bankers have said it will take time for those dollars to be absorbed into the banking system after the float.
Central Bank Governor Tarek Amer said in comments published by Al Mal newspaper that Egypt's banks bought $1.4 billion in the first six trading days after the float.
In a sign of growing investor confidence, yields on Egypt's three- and nine-month Treasury bills fell on Sunday. Bank of America Merrill Lynch recommended in a recent report that investors buy six-month Egyptian T-bills.
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