Tuesday 27 September 2022
I wrote – Shaima Hefzy:
The price of the dollar globally continues to climb against the prices of other currencies, which made currencies such as the euro and the pound sterling record low levels, which raises the question about the extent to which the Egyptian pound is affected by these movements.
According to Bloomberg data, US 10-year Treasury yields rose this week to the highest level since April 2010, reflecting the strength of investor confidence in the dollar as a safe haven investment.
But the dollar’s rise comes at the expense of other currencies, with the pound sterling and the euro dropping to record levels, while the Chinese currency approached its lowest levels since 2008.
With expectations that the dollar will continue to rise, driven by the US Federal Reserve’s attempts to curb inflation by raising interest rates, we try in this report, through several questions, to answer the reflection of all this on the exchange rate of the pound, according to what economist Hani Genena explained to Masrawy and foreign reports:
Why is the dollar jumping against other foreign currencies?
According to international news agencies, risks to the economy are increasing in several European countries such as Britain, Germany and France at a time when energy costs are rising with rising inflation, causing investor confidence in the currency of this country to decline.
On the other hand, it coincides with raising the US interest rate several times in a row during the current year for the first time since 2018, which is positively reflected on the strength of the dollar and US bonds.
– What determines the price of the dollar against other currencies?
When confidence increases in the dollar as an investment currency, and with the rise in interest, investors sell what they have in other currencies such as the euro and sterling and turn to buy the dollar, which means a great demand for the dollar causes the price to rise, while the fall in demand for the euro and other currencies lowers its price.
Why do these prices move volatile?
Because the prices of the dollar and other currencies, they move according to the mechanisms of the market supply and demand – the mechanism that automatically affects pricing.
Is the Egyptian pound automatically affected by these rises?
The exchange rate of the pound is not directly affected by the rise of the dollar globally against currencies because the exchange rate in Egypt is not completely subject to the mechanism of supply and demand, and a ceiling is still set indirectly for it, which is the so-called relatively managed exchange rate.
– So is there an indirect effect on the pound?
In the event that the dollar rose significantly against foreign currencies, such as the euro, in conjunction with the relative stability of the pound, the price of the pound also becomes high against the euro.
But the rise of the dollar globally represents at the same time a factor of pressure on the pound indirectly, as it may push the need for further devaluation of the local currency at a later time if the same conditions persist.
– When can the pound be directly affected by the change in the dollar globally?
This happens if the exchange rate is completely liberalized, which means that any change in the price of the US currency will be followed by a change in the price of the pound, as well as being affected by all the factors of supply and demand for the currency.