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Egypt's Pound Slides as IMF Deal Triggers New Exchange Rate

A general view of banks, hotels, office and residential buildings in the center of Cairo, Egypt, September 13, 2018. REUTERS/Amr Abdallah Dalsh
A general view of banks, hotels, office and residential buildings in the center of Cairo, Egypt, September 13, 2018. REUTERS/Amr Abdallah Dalsh
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Egypt's Pound Slides as IMF Deal Triggers New Exchange Rate

A general view of banks, hotels, office and residential buildings in the center of Cairo, Egypt, September 13, 2018. REUTERS/Amr Abdallah Dalsh
A general view of banks, hotels, office and residential buildings in the center of Cairo, Egypt, September 13, 2018. REUTERS/Amr Abdallah Dalsh

Egypt's pound slid about 14.5% to a record low against the dollar on Thursday as authorities announced a $3 billion International Monetary Fund deal with a commitment to a "durably flexible exchange rate regime".

The central bank also raised interest rates by 200 basis points in an out-of-cycle meeting, saying it aimed to anchor inflation expectations and contain demand-side pressures.

Egypt had been in talks with the IMF for a new loan since March. The fund has long been urging Egypt to allow greater exchange rate flexibility.

In a statement confirming a staff-level agreement on a $3 billion, 46-month Extended Fund Facility, the IMF said a flexible exchange rate regime should be "a cornerstone policy for rebuilding and safeguarding Egypt's external resilience over the long term".

It said the deal was expected to catalyze a large, multi-year financing package, including about $5 billion in the fiscal year ending June 2023, reflecting "broad international and regional support for Egypt".

Egypt's central bank said it was intent on intensifying economic reforms and had "moved to a durably flexible exchange rate regime, leaving the forces of supply and demand to determine the value of the EGP against other foreign currencies".

The pound weakened rapidly to around 23 to the dollar from 19.67, data from Refinitiv showed. That was similar to the parallel market rate and indicated a currency float, Naeem Brokerage said in a note.

The bank had already allowed the pound to depreciate by 14% against the dollar in March, and the currency had been slipping gradually since May.

Non-deliverable futures, which FX traders use to bet on moves in the currency over various timeframes, pointed to the pound falling to around 24 per dollar over the next three months and 26 per dollar over the next year.

Egypt's international government bonds also gave back the gains they had made earlier in the day, which had lifted the price of most of them by more than 2 cents on the dollar, Reuters reported.

In its statement on Thursday, the central bank said the Russia-Ukraine conflict had "dire economic ramifications" and consequently led Egypt to experience large capital outflows.

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US Job Growth Surges in September, Unemployment Rate Falls to 4.1%

A woman enters a store next to a sign advertising job openings at Times Square in New York City, New York, US, August 6, 2021. REUTERS/Eduardo Munoz/File Photo
A woman enters a store next to a sign advertising job openings at Times Square in New York City, New York, US, August 6, 2021. REUTERS/Eduardo Munoz/File Photo
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US Job Growth Surges in September, Unemployment Rate Falls to 4.1%

A woman enters a store next to a sign advertising job openings at Times Square in New York City, New York, US, August 6, 2021. REUTERS/Eduardo Munoz/File Photo
A woman enters a store next to a sign advertising job openings at Times Square in New York City, New York, US, August 6, 2021. REUTERS/Eduardo Munoz/File Photo

US job growth accelerated in September and the unemployment slipped to 4.1%, further reducing the need for the Federal Reserve to maintain large interest rate cuts at its remaining two meetings this year.
Nonfarm payrolls increased by 254,000 jobs last month after rising by an upwardly revised 159,000 in August, the Labor Department's Bureau of Labor Statistics said in its closely watched employment report on Friday.
Economists polled by Reuters had forecast payrolls rising by 140,000 positions after advancing by a previously reported 142,000 in August.
The initial payrolls count for August has typically been revised higher over the past decade. Estimates for September's job gains ranged from 70,000 to 220,000.
The US labor market slowdown is being driven by tepid hiring against the backdrop of increased labor supply stemming mostly from a rise in immigration. Layoffs have remained low, which is underpinning the economy through solid consumer spending.
Average hourly earnings rose 0.4% after gaining 0.5% in August. Wages increased 4% year-on-year after climbing 3.9% in August.
The US unemployment rate dropped from 4.2% in August. It has jumped from 3.4% in April 2023, in part boosted by the 16-24 age cohort and rise in temporary layoffs during the annual automobile plant shutdowns in July.
The US Federal Reserve's policy setting committee kicked off its policy easing cycle with an unusually large half-percentage-point rate cut last month and Fed Chair Jerome Powell emphasized growing concerns over the health of the labor market.
While the labor market has taken a step back, annual benchmark revisions to national accounts data last week showed the economy in a much better shape than previously estimated, with upgrades to growth, income, savings and corporate profits.
This improved economic backdrop was acknowledged by Powell this week when he pushed back against investors' expectations for another half-percentage-point rate cut in November, saying “this is not a committee that feels like it is in a hurry to cut rates quickly.”
The Fed hiked rates by 525 basis points in 2022 and 2023, and delivered its first rate cut since 2020 last month. Its policy rate is currently set in the 4.75%-5.00% band.
Early on Friday, financial markets saw a roughly 71.5% chance of a quarter-point rate reduction in November, CME's FedWatch tool showed. The odds of a 50 basis points cut were around 28.5%.