EGP WEAKENING on market expectation of devaluation: The CBE sold USD 118.6 mn in yesterday’s FX auction at an unchanged rate of EGP 8.78 per greenback, but out on the street, Reuters quoted four traders who were selling USD at a range between EGP 13.05 to 13.10 per USD 1. Bloomberg pegs the average rate of the parallel market traders it surveyed at EGP 12.99 per USD 1, which it called “the weakest figure on record since the weekly poll was started in 2013.” Neither newswire gave an indication of the volumes traded. Al Borsa cited a slightly higher rate of EGP 13.15. Many are taking this as a signal the market expects devaluation. CI Capital senior economist Hany Farahat commented, saying: “The general feeling is that devaluation is imminent … The black market premium will peak once devaluation occurs and will only start falling when foreign currency liquidity improves and capital controls are removed. Only then will the two rates converge.” Traders who spoke with Al Borsa say the market had interpreted certain part of President Abdel Fattah El Sisi’s speech on Monday as suggesting that a devaluation is definitely nigh. The president had reportedly stated that the government will ensure the supply of food at reasonable prices within the upcoming month or two regardless of the exchange rate.

All of this has investors targeting short-term bills now in anticipation of an interest rate increase and EGP devaluation, Bloomberg’s Ahmed Feteha writes. “Yields on three-month Treasury Bills fell 15 basis points on Sunday, the most since May 10” as Amr Seif, head of treasury at Al Ahli Bank of Kuwait-Egypt, says “even nine-month bills are considered riskier at this point.”