The Egyptian pound fell to its weakest in almost eight years as concerns the government might devalue or place restrictions on currency movements prompted citizens to pile into dollars, forex traders said.
Renewed political strife over the past month has thrown doubt on the ability of the government to push through a program of spending cuts and tax hikes.
That is seen as a prerequisite for a $4.8 billion International Monetary Fund loan that Egypt needs to tackle a financial crisis.
The turbulence prompted credit agency Standard & Poor’s to downgrade the country’s long-term credit rating on Monday and warn of a possible further cut.
On Tuesday the government made it illegal for travellers to carry more than $10,000 out of the country.
“All customers are rushing to buy dollars after the downgrading,” said a dealer at a Cairo-based bank. “We’ll have to wait to see how the market will operate with the U.S. dollar, because as you know there is a rush at the moment.”
The pound was bid as low as 6.1775 to the dollar compared to 6.169 on Tuesday. This was its weakest in almost eight years and close to its all-time low of 6.26 hit on Oct. 14, 2004.
Dealers said there were signs the central bank was selling dollars on Wednesday to keep the currency from weakening further. Trading was exceptionally heavy, boosted by orders left over from Tuesday, which was a bank holiday in Europe.
The central bank has spent more than $20 billion of its foreign reserves to support the pound since the popular uprising that toppled Hosni Mubarak in early 2011.
Reserves fell by $448 million in November and stand at $15 billion, equal to only about three months of imports.
“Definitely there is pressure on the pound,” said a dealer at a second bank. “If foreign reserves are much lower at the end of the month the central bank will have to lower the pound.”