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Egyptian Pound Falls Against Dollar in Currency Markets

A view from an airplane window shows buildings in a densely populated area, in Cairo, Egypt, March 23, 2024 REUTERS/Mohamed Abd El Ghany
A view from an airplane window shows buildings in a densely populated area, in Cairo, Egypt, March 23, 2024 REUTERS/Mohamed Abd El Ghany
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Egyptian Pound Falls Against Dollar in Currency Markets

A view from an airplane window shows buildings in a densely populated area, in Cairo, Egypt, March 23, 2024 REUTERS/Mohamed Abd El Ghany
A view from an airplane window shows buildings in a densely populated area, in Cairo, Egypt, March 23, 2024 REUTERS/Mohamed Abd El Ghany

The Egyptian pound fell against the dollar on Tuesday, nearing 48 pounds in some banks.

Despite Prime Minister Mustafa Madbouly’s assurance of clearing all goods at Egyptian ports, some traders are holding back deliveries, expecting the pound to weaken further.

Madbouly mentioned that the Finance Ministry seized $1.7 billion worth of goods, but owners are hesitant to accept them, waiting for the dollar’s price to drop.

Capital Economics predicts the Egyptian pound will hit 49 against the dollar by year-end, down from the current 47 average, and may drop further to 50-55 in the coming years.

Meanwhile, Egypt’s GDP is expected to grow by 2.3% in 2023-2024, then dip to 1.5% in 2024-2025 before bouncing back to 5% in the following fiscal year.

The transition to a more conventional economic policy will initially slow down growth, but it's expected to pave the way for stronger GDP growth in the long term.

The recent Central Bank’s decision to reduce the pound’s exchange rate hints at a more flexible monetary approach.

This could mean avoiding interest rate hikes and securing an $8 billion deal with the IMF, along with additional assistance from the European Union and the World Bank. It’s a positive sign for Egypt’s financial support.

Those agreements have improved Egypt’s financial standing abroad, with all financial aid promises expected to bring in a significant flow of foreign currency, covering more than the total external financing needs of Egypt.

Meanwhile, Capital Economics notes that foreign capital inflows into local bond and stock markets have sped up, with hopes that Egypt's political moves will boost direct investment.

However, it anticipates some challenges ahead, as the government intends to stick to tight fiscal policy and aims to increase the initial budget surplus from 2.5% to 3.5% of GDP.

Additionally, Capital Economics points to plans to extend the maturity of public debt, which will ease concerns about Egypt's fragile debt situation.

The research firm expects the government debt-to-GDP ratio to drop to 93% in 2024-2025 and 89% in 2025-2026 from an estimated average of 96.2% in the current fiscal year.

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US Locks in Steep Tariff Hikes on Chinese Imports

Stacked containers and cranes are shown at the Port of Los Angeles in Los Angeles, California (AFP)
Stacked containers and cranes are shown at the Port of Los Angeles in Los Angeles, California (AFP)
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US Locks in Steep Tariff Hikes on Chinese Imports

Stacked containers and cranes are shown at the Port of Los Angeles in Los Angeles, California (AFP)
Stacked containers and cranes are shown at the Port of Los Angeles in Los Angeles, California (AFP)

The Biden administration on Friday locked in steep tariff hikes on Chinese imports, including a 100% duty on electric vehicles, to strengthen protections for strategic domestic industries from China's state-driven excess production capacity.

The US Trade Representative's office told Reuters that many of the tariffs, including a 100% duty on Chinese EVs, 50% on solar cells and 25% on steel, aluminium, EV batteries and key minerals, would go into effect on Sep 27.

The USTR determination showed a 50% duty on Chinese semiconductors, which now include two new categories - polysilicon used in solar panels and silicon wafers - are due to start in 2025.

Adjustments to the punitive “Section 301” tariffs on $18 billion worth of goods announced in May by President Joe Biden were minimal and disregarded auto industry pleas for lower tariffs on graphite and critical minerals needed for EV battery production because they are still too dependent on Chinese supplies.

USTR left unchanged the tariff increase to 25% from zero on lithium-ion batteries, minerals and components, with the increase for batteries for EVs taking effect Sep 27 and those for all other devices, including laptops and cell phones, on Jan 1, 2026.

Lael Brainard, the top White House economic adviser, told Reuters that the decision was made to ensure that the US EV industry diversifies away from China's dominant supply chain.

She said such “tough, targeted” tariffs are needed to counteract China's state-driven subsidies and technology transfer policies that have led to over-investment and excess production capacity.

But Washington is investing hundreds of billions of dollars worth of its own tax subsidies to develop domestic EV, solar and semiconductor sectors.

“The 100% tariff on electric vehicles here does reflect the very significant unfair cost advantage that Chinese electric vehicles in particular are using to dominate car markets at a breathtaking pace in other parts of the world,” Brainard said.

China has vowed retaliation against the “bullying” tariff hikes and argued that its EV industry's success is due to innovation, not government support.

The higher US tariffs take effect as Vice President Kamala Harris and former President Donald Trump are both courting voters in auto and steel producing states, trying to position themselves as tough on China ahead of the November presidential election.

Trump has vowed to impose 60% tariffs on all Chinese imports.

The European Union and Canada also have announced new import tariffs on Chinese EVs, the latter matching the 100% US duties.

The final tariff decision does provide some temporary relief for US port operators who were facing a new 25% tariff on massive ship-to-shore cranes, an industry that China dominates with no US producers.

The duty would add millions of dollars to the cost of each crane.

USTR said it will allow exclusions from the tariffs for any Chinese port cranes that were ordered prior to the May 14 initial tariff announcements, as long as they are delivered by May 14, 2026.

USTR raised tariffs to 50% on medical face masks and surgical gloves, from an initially proposed 2%, but delayed their start to allow a shift to non-Chinese suppliers.

The planned duty on Chinese syringes, which were in short supply during the COVID-19 pandemic, will immediately rise to 100% from a previously planned 50%, but USTR will allow a temporary exclusion for enteral syringes, used to feed infants, for a year.

The agency also said it will consider requests for tariff exclusions for five Chinese industrial machinery categories, including those for machinery for purifying or filtering liquids, industrial robots and printing machinery.

It will allow tariff exclusions for Chinese solar wafer and cell manufacturing equipment, but not for equipment used to make full solar modules.