Egypt's Currency Weakens to Fresh Record Low
By Erin McCarthy :
Egypt's currency ticked down to another record low against the dollar Wednesday, as the absence of an agreement with the International Monetary Fund leaves Egypt's economy in a state of crisis.
The IMF left Cairo last week without agreeing on a vital $4.8 billion loan for the country, which analysts and investors say is critical to draw investment back to the cash-strapped country and to encourage other multilateral bodies to provide assistance.
Egypt's currency has hit record lows on a nearly daily basis for much of this year, as dwindling foreign exchange reserves and policy paralysis over much-needed reforms have driven investors away from the Egyptian pound and the country altogether. Egypt has spent nearly two-thirds of its foreign reserves since the political uprising that toppled former leader Hosni Mubarak. Reserves currently stand at a critical minimum level of $13.4 billion, according to the central bank's official figures.
The U.S. currency traded as high as EGP6.9332, from EGP6.9200 the previous session and from EGP6.7825 at the start of the month. It later eased off some gains, trading at EGP6.9268, according to CQG.
While the pound has reached very inexpensive levels that would typically attract bargain hunters, Egypt's extensive funding needs and its lack of an IMF loan is making investors wary.
"The case in Egypt is strongly correlated with what's going to happen with the IMF," said Souheir Asba, frontier market strategist at Societe Generale in London. "They need capital inflows and the [currency's] levels are now very interesting, but investors won't have confidence to go into Egyptian assets until they have an agreement with the IMF."
Still, analysts say that Egypt's central bank may take measures to prevent the dollar from rising above the EGP7 level, and recent bilateral loans from neighboring countries have been viewed as a positive development, though certainly not a permanent solution.
Among other emerging-market currencies, the Russian ruble and South African rand led gains Wednesday on the back of strong increases in commodity prices.
Both crude oil and gold prices rose Wednesday, as investors snapped up these assets at lower prices after last week's steep slide.
The Russian ruble, which often tracks oil prices since Russia is a major crude producer, strengthened about 0.6% against the dollar, which bought RUB31.458, according to CQG. South Africa, meanwhile, is a major gold exporter, so the rand is sensitive to moves in the precious metal. The rand advanced 0.3% against the U.S. currency, which bought ZAR9.1748 Wednesday.
Other emerging currencies, however, did not fare as well as weak economic data clouded the outlook for the global economy. The Mexican peso slipped against the dollar after U.S. factory sector data disappointed, with U.S. durable goods orders falling 5.7% in March. The peso later recovered, however, gaining 0.2% against the dollar, which bought MXN12.2219.
Emerging European currencies also slipped after downbeat reading on German business confidence. The Hungarian forint fell 0.5% against the euro, which traded at HUF301.03, while the Polish zloty weakened 0.3% to trade at PLN4.1513 per euro.
Emerging-market international debt issuance also continued Wednesday. Export-Import Bank of Korea was in the market with a seven-year, euro-denominated, benchmark-sized bond. Alliance Oil Company Ltd. was tapping markets with a seven-year, dollar-denominated benchmark-sized deal, according to a term sheet seen by Dow Jones Newswires.
The Republic of Rwanda is also set to ride the wave of cheap cash around the globe to issue its first international bond. The deal, which is set to price Thursday, will mature in 10 years and total $400 million--equivalent to over 6% of the country's annual economic output.
--Serena Ruffoni, Jessica Mead, Reem Abdellatif and Prabha Natarajan contributed to this article.
Write to Erin McCarthy at erin.mccarthy@dowjones.com
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