The Egyptian pound exchange rate continues to strengthen; the US dollar against the Egyptian pound falls to a one-year low

The Egyptian foreign exchange market has recently shown significant changes, with the USD to EGP exchange rate continuously declining. According to data released by the National Bank of Egypt on August 14, the USD to EGP exchange rate has fallen to the range of 48.28-48.38, marking a new low in the past year. This trend continues the previous appreciation of the Egyptian pound, with a cumulative appreciation of 6.3% compared to the historic low of 51.7 in April this year. This wave of exchange rate changes reflects the combined effects of multiple economic factors.

Joint effects of internal and external factors

Changes in the international financial environment have created favorable conditions for the strengthening of the Egyptian pound. Analysis reports point out that the Federal Reserve's upcoming rate-cutting cycle (expected to cut rates four times this year) is causing the US dollar to weaken globally. This trend, combined with pressures from shrinking international trade and a sluggish tourism market, has weakened short-term demand for the US dollar, forming the external background for the relative appreciation of the Egyptian pound.

The strong performance of the Egyptian pound is more rooted in the positive progress of Egypt's domestic economic fundamentals and the effectiveness of structural reforms:

Surge in remittance inflows: In the first 11 months of the 2024-25 fiscal year, overseas labor remittances increased significantly by 69.6% year-on-year, reaching 32.8 billion USD. The exchange rate market reform implemented in March 2024 effectively curbed black market transactions and promoted the return of funds through formal channels.

Strong recovery in tourism: In the first three quarters of this fiscal year, Egypt's tourism revenue reached 12.5 billion USD, a year-on-year increase of 15.4%. The recovery of visitor flow in the Red Sea resort area and the rise in cultural heritage tourism jointly drove the growth of foreign exchange income, enhancing its stability.

Increase in foreign exchange reserves and improvement in the current account: Egypt's net foreign assets grew significantly by 50% within half a year, reaching 15 billion USD. Meanwhile, the current account deficit narrowed by more than 50% in the second quarter of 2025, benefiting from the seasonal decline in energy imports and the implementation of fiscal tightening policies.

Changes in foreign capital portfolio allocation: Despite discussions about hot money, foreign capital allocation shows new characteristics: short-term treasury bills offer an attractive arbitrage yield as high as 22%; institutions like Goldman Sachs assess that the Egyptian pound is undervalued by 30%, indicating a value gap effect; Standard Chartered Bank monitoring data shows that within the 38 billion USD portfolio investment, the proportion of medium- to long-term holdings has increased.

Market confidence restoration measures take effect: The "Tourism Dollar Facilitation" policy led by the National Bank of Egypt (including measures such as reducing overseas card fees) effectively curbed foreign exchange hoarding behavior. This policy, combined with a significant 25% growth in tourism, has formed a virtuous cycle mechanism promoting the stability of the foreign exchange market.

Can the strength of the Egyptian pound be sustained?

The floating exchange rate system implemented by the Central Bank of Egypt in March 2024 is a key foundation for a more market-oriented current exchange rate formation mechanism. Economists point out that the current appreciation of the Egyptian pound more reflects the real foreign exchange supply and demand relationship, fundamentally different from the vulnerability caused by over-reliance on hot money inflows in 2016.

Regarding whether the depreciation trend of the USD against the EGP can continue, renowned economist Dr. Medhat Nafeel emphasized several key conditions in an exclusive interview with the Masrawy website:

The gap between inflation rate and nominal interest rate needs to narrow to a safe range;

The non-oil trade deficit must continue to improve;

Egypt needs to achieve a basic budget surplus;

The "Egypt Manufacturing 2030" industrial substitution plan needs to be accelerated.

Dr. Nafeel specifically pointed out: "Exchange rate stability is essentially a barometer of the health of the economic structure." Drawing on international experience, he stated, "Just as China reduced its external dependence through the 'Made in China 2025' strategy, Egypt needs to adopt a more aggressive localization production strategy to achieve a fundamental economic structural transformation."

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