The Egyptian pound reached a 3-1/2 year low against the dollar on Wednesday as risk-averse investors switched into US treasuries and traders reported slowing inflows of foreign cash into Egyptian securities.
The pound has tracked the euro, which hit a six-week low against the US currency on Tuesday, while a recent spate of foreign buying of Egyptian equities and treasury bonds appears to be losing steam.
Egypt's benchmark stock index saw its biggest drop in six weeks on Wednesday after two days of gains, with traders reporting an easing of foreign buying.
The Egyptian currency closed at 5.7040 after hovering around 5.70 since mid-July, according to the average weighted spot rate over the session. It was the lowest since January 2007.
One Cairo currency trader said this week that the pound could bounce back to 5.65 or even 5.60 to the dollar, given speculation that the central bank may intervene to head off inflationary pressure from imports.
Egypt's economic growth has been accelerating and economists expect the bank to keep interest rates on hold for the time being, saying core inflation remains within what they say is the bank's 6-8 percent comfort zone.
But analysts have said the central bank is unlikely to allow the pound to fall much further because it would make imported basic foodstuffs costlier and feed inflation.
Expectations that the currency had bottomed out and was now under-priced given the health of the country's economy spurred foreign appetite for Egyptian treasury bills in recent weeks.
Egypt is the world's biggest wheat importer and the government subsidizes bread prices to stave off hunger in a country where one fifth of citizens live on less than US$1 per day, according to United Nations figures.
