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Egypt Pound Set for First Weekly Gain in Five: Bonds Gain

The Egyptian pound headed for the first weekly gain in five after stocks climbed and on signals there won’t be a change in the country’s currency policy. The dollar bonds rose.

The currency, subject to a managed float, strengthened 0.1 percent this week after reaching 6.0623 a dollar intraday on June 27, the weakest level since December 2004. It was little changed at 6.0539 at 4 p.m. in Cairo, according to data compiled by Bloomberg. Twelve-month non-deliverable pound forwards, which provide guidance to expectations, retreated from a record low.

President Mohamed Mursi met with central bank governor Farouk El-Okdah twice this week, discussing the banking industry, foreign exchange and the economy, the official Middle East News Agency reported. Mursi was declared the winner on June 24 of Egypt’s first free presidential contest, sending the benchmark EGX 30 Index on a 20 percent surge in six days.

“The currency is taking cue from the stock market’s gains and the president’s meetings with Okdah, which were widely seen signaling there won’t be a change in the central bank’s policy of maintaining the value of the pound,” said Moustafa Assal, managing director of Bondlink Advisory, a Cairo-based financial advisory firm that mostly trades government securities.

Index Surge

The benchmark measure advanced for the eighth time in nine days today, gaining 0.7 percent. In speeches following his victory, the new president praised the North African nation’s military leaders and promised to build a “civil, modern state.” Talks are continuing to replace the government of Prime Minister Kamal el-Ganzouri.

Egypt will probably reach a $3.2 billion loan agreement with the International Monetary Fund after Mursi forms a government, Abdallah Shehata, a member of the economic committee at the Islamist Freedom and Justice Party, said July 1. Recovery in tourism and economic activity will help support the exchange rate, he said, adding “there is no need for devaluation.”

The central bank is due to release foreign reserves data for June this week. Reserves have been reduced by more than half to $15.52 billion since the January 2011 uprising that ousted Hosni Mubarak the following month. The pound over the same period has lost about 4 percent.

The currency’s 12-month forwards strengthened to 7.45 a dollar from 7.95 on June 26, the lowest level since Bloomberg started tracking them in 2007. That reflects expectations for the currency to lose 19 percent over the life of the contracts.

“There’s been a transition without violence, so that caused a confidence bounce in the markets,” Richard Fox, London-based head of Middle East and Africa Sovereigns at Fitch Ratings, said by phone. “But we still have no clarity on how long it will take to reach an IMF agreement.”

Financing Needs

Finance Minister Momtaz el-Saieed said in April the country needs IMF funds to help meeting financing needs of $11 billion over the next 18 months. Egypt signed an agreement for a $1 billion loan from the Islamic Development Bank, the government said July 1.

The yield on the 5.75 percent dollar bonds due in 2020 declined a fifth day, losing nine basis points, or 0.09 percentage point, to 6.18 percent at 4:14 p.m. in Cairo, according to data compiled by Bloomberg. That’s the lowest level since November.

Yields on domestic securities, which the country plans to rely on to fund about three-quarters of its budget deficit for the fiscal year that started this month, declined at an auction today.

The government met its 6 billion-pound fundraising target as the average six-month yield retreated to 15.42 percent from a record 15.53 percent last week, according to data posted on the Finance Ministry website. The one-year rate decreased seven basis points to 15.87 percent.

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