Late January, the Central Bank of Egypt’s (CBE) Governor said that the FX market is expected to witness more volatility compared to the relatively stagnant rates that prevailed since mid-2017. This raises the ever-burning question: Where is the Egyptian pound (EGP) heading?Answering this question has never been an easy task. We believe the EGP/USD rate is one of the most uncertain variables to forecast currently, especially that the purchasing power parity (PPP) hypothesis —we find—cannot solely lead the FX pattern. Rather, FX rates respond to interrelated factors, including fundamental long-term elements, market psychology, and even tactical measures. Besides, the EGP flotation does not have a long history that could provide a sufficient historical evidence or make the currency’s pattern predictable. That is, trying to predict the behavior of the EGP could be as uncertain as playing or reading Tarot cards to foresee the future. Yet, we try to read different cards; to wit, we use different tools to assess what the currency will most probably look like in the short and medium terms.
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