Cairo - Mubasher: The Egyptian pound reached its highest level against the US dollar since April, and a recent report by Renaissance Capital assumes current account trends are supportive of the currency.

“Letting the currency strengthen may be about putting downward pressure on inflation, or it may be that the authorities feel foreign exchange reserves are high enough to allow appreciation,” the report indicated.

A third factor could be that there is an implicit target for the currency in the 2017-2018 Fiscal Year and the Central Bank of Egypt (CBE) is now going to edge the currency towards that level, it added.

The fair value for the Egyptian currency is EGP 14.2 per $1 based on the 22 year real effective exchange rate (REER) model.

“Our assumption is the authorities will want to maintain a level weaker than this to help with jobs,” Renaissance Capital forecasts, noting that they see an exchange rate of EGP 16 per dollar as the maximum they would let the currency rise to.

Hard to know where the currency goes from here. But in the meantime, all good for equity and bond investors, since the five-year local bonds now yield 21%, the report concluded.