Egypt's pound was almost steady early on Sunday as banks began trading freely for the first time since authorities ditched the currency's peg in a policy shift designed to crush a black market and clinch an International Monetary Fund loan.
Inter-bank trading began at 1030 a.m. (0830 GMT) but activity was extremely slow because banks were uncertain about the prospects for supply and demand of US dollars.
The pound weakened slightly from 15.50 against the dollar on opening to 15.75 in the first 75 minutes. Banks were bidding for dollars around 15.60 and offering around 16.00. The pound had closed at 15.35 on Saturday.
Despite the slow start, Egyptians are braced for a currency rollercoaster in coming days and weeks, with many expecting further depreciation of the pound as banks struggle to meet an anticipated deluge of pent-up dollar demand from companies that struggled for two years to secure hard currency.
"People do not know how to trade FX in a free market yet. I'd say it will touch 18 before the end of the day if anyone is offering," said one banker. "Activity will pick up tomorrow, irrespective of what happens today."
Egypt floated its currency on Thursday, initially devaluing it by about a third from its peg of 8.8 to the dollar and then letting the currency drift weaker.
Banks were open over the Friday-Saturday weekend but Sunday was the first formal day of trading without direct central bank guidance.
Businesspeople and importers have welcomed the float, which ended strict rationing of dollar supplies at banks and dealt a blow to the dollar black market, which boomed under the peg.
The pound hit a record low of 18 per dollar on the black market last Sunday, prompting a boycott by importers. This saw the rate bounce back to 13 per dollar within days, giving the central bank a window in which it could abandon the peg with relatively little risk of massive volatility.
Some bankers expressed disappointment that the central bank has not flooded the system with hard currency to help stabilise the pound in the early weeks of trade. They predicted the black market would return if banks are unable to meet the backlog of dollar demand at businesses.
However, bankers said the central bank could still intervene by the back door, providing state-owned Banque Misr and National Bank of Egypt with foreign currency to sell to other banks. On Sunday morning, there was no evidence that this had happened.
Black market traders met late on Saturday to discuss the currency situation. One black market source said the traders, believing the banks would be unable to meet dollar demand, had decided at the meeting to start selling dollars at 18.50 pounds.
"Importers will be desperate so they will have to go to us for FX," the source said.
But businessmen have become deeply frustrated by black market profiteering and rather than go back to that market, some may prefer to pay more expensive rates for dollars from banks in order to help stabilise the new currency system.
"The interbank market started and there is not much activity. There are mispricings in the market but apparently no one is taking advantage of them," said one local banker, adding that there should be some volume traded later in the day.
"People have to test it, even if it is at small volumes."
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