Egypt'S Central Bank Has Devaluated Foreign Investors And Has Fled The Market.

Egypt

The Egyptian Pound was devalued on Monday (March 14th), and it said it would adopt a more flexible exchange rate mechanism aimed at restoring market equilibrium and alleviating pressure on foreign exchange shortfalls that would suppress corporate activities and confidence.

Egypt's central bank made the Egyptian Pound depreciate from 7.73 to 8.85 against the US dollar.

The urgent shortage of the banking system has injected nearly $200 million.

The central bank said in a statement, "the Central Bank of Egypt has decided to

We should adopt a more flexible policy and strive to solve the distortion of the exchange rate system and restore the orderly circulation of foreign currencies in the banking system.

The statement did not explain how the new measure will play its role, but promised to raise the scale of foreign exchange reserves from the current US $16 billion 500 million to US $25 billion by the end of this year, and "maintain the orderly operation of the foreign exchange market and the stability of the medium-term price level."

Analysts welcomed the move, and many thought it should have been launched earlier, which could encourage foreign investment into the Egyptian stock market and the debt market.

Foreign capital has been fleeing these markets in recent years.

The depreciation of the Egyptian Pound helps narrow the gap between the official exchange rate and the black market rate.

In recent weeks, the Egyptian Pound has been derogating from the dollar against the unprecedented level in the black market, which is close to 10.

2 black market traders say they will now sell dollars near the 9 Egyptian Pound.

Meanwhile, Egypt's pound fell by nearly 13% to 9.75 against the US dollar in the 3 month non deliverable forward foreign exchange (NDF) market.

Simon Williams, chief analyst of the central and Eastern Europe, Middle East and Africa Department of HSBC Holdings, said: "the change in policy stance is welcome, but it should have been so long ago that if Egypt was launched 18 months ago, Egypt could save $one billion in reserves."

Williams pointed out, "the question now is, will they follow up? If the Egyptian Pound needs to further devalue, will they allow it? Inevitably, this will lead to higher inflation, and is the authorities ready to tolerate it?"

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The Central Bank of China unexpectedly devalued the renminbi in August last year, prompting hedge funds and other speculators to bet on the further depreciation of the renminbi.

7 months later, the renminbi was unexpectedly strong, causing many short sellers to suffer heavy losses.

According to the data released by Bloomberg, since August, at least 562 million US dollars have been betting that the RMB against the US dollar will fall below 6.6 yuan (the lowest point since the devaluation of the renminbi in August).

In addition, $807 million option will lapse in three months.

The US dollar / offshore renminbi New York trading session continued to rise, but remained below 6.50. The devaluation pressure continued to ease. In February, the growth rate of fixed asset investment was higher than expected, and investors were reluctant to rebuild the US dollar.

Although the US dollar / RMB is close to its lows since 2016, it is still cautious about buying dollars. If the US dollar is weak, the long positions will be squeezed.

The option volatility curve and the forward curve all moved down a week ago; the Morgan Stanley compiling the RMB short selling index also reached its lowest level since October 30, 2015.

Morgan Stanley will raise the target price from RMB 6.98/ to US $6.93/ before the end of 2016. It is estimated that the US dollar / RMB will reach 7.30. at the end of 2017.

Dariusz Kowalczyk, an orient strategist, wrote in a report to clients that the performance of the Chinese economy in early 2016 has increased people's confidence.

Fixed asset investment accelerated the construction industry and the real estate sector, partially alleviating the general slowdown in other sectors of the economy.

The 1-2 month's economic data show that China's economy is moving towards the direction of 6.5%-7.0% growth in the whole year's GDP growth target, reducing the interest rate space and even postponing interest rate cuts.