Pound dips as weekend violence prompts caution

Pound dips as weekend violence prompts caution

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Sun, 27/01/2013 - 19:59

The pound weakened against the dollar Sunday, as street violence and deaths added to the political crisis, extending a steady decline at the Central Bank of Egypt’s foreign exchange auctions since their launch last month.

One analyst said trading was cautious but not panicked after a weekend of flare-ups across Egypt that killed at least 41 people. Repeated eruptions of violence have weighed heavily on the pound, which has been hitting fresh lows against the dollar.

At 6.500 to the dollar, the pound has lost about 7 percent of its value since the auctions began at the end of December. It is about 12.5 percent weaker than before the uprising that ousted Hosni Mubarak in 2011.

At the latest auction Sunday, the Central Bank said it had accepted bids worth US$48.1 million with a cutoff price of LE6.6235 to the US dollar.

“There is an overall sense of caution as the market absorbs the current developments on the street, but no panic or overreaction,” said Youssef Kamel, a fixed income analyst at financial firm Rasmala.

The economy, battered by two years of political and street turmoil, has been helped by injections of cash from Gulf and other donors. But delays in securing a $4.8 billion International Monetary Fund loan have worried investors.

On the interbank market, the pound weakened to 6.500, around the maximum allowed under Central Bank rules that let the currency move in a band of 0.5 percent either side of the weighted average of bids at the most recent auction.

The auctions were launched in a bid to preserve the country’s foreign reserves, which have fallen to a critical level of about $15 billion, covering roughly three months imports.

The bank usually holds three foreign currency auctions a week. The last auction was last Tuesday, however, because Thursday, when it usually holds its third weekly auction, was a holiday.

Sunday’s auction was the 14th such sale.