The Egyptian pound weakened sharply on Monday, sliding 3.4% on the offshore market to 54.6 per U.S. dollar. The fall marked the currency's steepest single-session decline in three weeks and left it as the world’s weakest performer since the US-Israeli war against Iran began on February 28, according to Bloomberg data.
Although Egypt is located hundreds of miles from Iran and the Persian Gulf - the region where the conflict is concentrated - investors have treated Egyptian assets among the most affected in the Middle East by the economic fallout of the war. The offshore exchange rate move highlights persistent external pressures on the country’s currency.
The depreciation of the pound adds to existing inflationary challenges in Egypt. Recent policy changes have included increases in fuel prices and higher fares for metro travel, both of which feed into consumer costs across the economy.
Monetary authorities are due to meet on Thursday to review interest rate policy. Over the past year the central bank has gradually reduced its benchmark rate to the current level of 19% as consumer price growth slowed, but the recent currency deterioration and inflationary developments create a focused backdrop for the upcoming decision.
Market participants and policymakers face a constrained set of variables: a currency under pressure offshore, rising costs for fuel and public transport that push on consumer prices, and a central bank that has already eased rates in response to slower inflation. How officials reconcile these dynamics will be a central theme at the Thursday meeting.
Contextual note: Data cited regarding the pound's performance relative to other currencies since February 28 is drawn from Bloomberg figures referenced in market reports.