Egypt’s pound becomes world’s top performer as falling oil prices lift economy

Egypt has emerged as one of the biggest beneficiaries of the recent slump in global oil prices, with its currency recording the strongest gains in the world as lower energy costs improve the country’s economic outlook and attract renewed investor interest.

The Egyptian pound has climbed more than seven percent against the US dollar since early May, becoming the world’s best performing currency over the period, according to Bloomberg data. On Wednesday, the currency traded above 50 pounds to the dollar for the first time since March.

Read also: After success in Nigeria, Indorama seeks a bigger breakthrough in Egypt with $520m fertiliser project

The rebound has been driven largely by the fall in oil prices, which dropped below $80 a barrel on Tuesday to their lowest level in three months after the United States and Iran reached an agreement to reopen the Strait of Hormuz, a vital route for global oil shipments.

For Egypt, a major importer of oil, cheaper energy offers significant relief. Lower oil prices reduce the country’s import costs, ease pressure on government spending and help slow inflation, strengthening confidence among foreign investors.

For months, the Egyptian pound had been weighed down by concerns that high energy prices would increase Egypt’s import bill and place greater pressure on its fragile finances. The recent decline in oil prices has helped reverse those fears and sparked a renewed appetite for Egyptian assets.

Read also: Egypt’s inflation eases for first time in three months despite oil price shocks

Fresh figures from Egypt’s Central Agency for Public Mobilization and Statistics showed annual urban inflation slowed to 14.6 percent in May from 14.9 percent in April. The figure was slightly above economists’ expectations but remained among the lowest inflation readings recorded this year.

Transport costs, which have been a major contributor to rising consumer prices, also showed signs of easing. Transport inflation slowed to 24.7 percent in May from 29.2 percent a month earlier after the impact of fuel price increases introduced in March began to fade.

Investors believe the Egyptian pound could continue to strengthen if oil prices remain low.

“Egypt was one of the markets hardest hit during the recent crisis and is therefore among the biggest beneficiaries of the reversal in sentiment,” said Thys Louw, portfolio manager at Ninety One in London.

Read also: The biggest deals behind Africa’s strongest quarter in four years

Louw said the Egyptian currency could continue rising and may return to its level before the market turmoil, around 47.9 pounds against the US dollar.

The improving outlook has also boosted Egypt’s debt market. Egyptian dollar bonds have gained more than three percent on average since the United States and Iran agreement, making them among the best performing emerging market bonds during the period.

If lower oil prices persist, Egypt could see further progress in bringing down inflation, strengthening investor confidence and easing pressure on its economic reform efforts in the months ahead.