One of the biggest areas in the world when it comes to potential for monetary growth is no longer the Asia/Pacific region, but Africa. Egypt is first and foremost on the list of developing nations here, and they have recently taken a big step toward leveling the trading field. On Thursday, November 3, Egypt formally devalued their currency: the Egyptian pound. It had been set at a fixed rate of 8.8 pounds per 1 U.S. dollar. By devaluing it, Egypt abandons the artificially strong currency and opens the door for trade to thrive. Thanks to the too strong pound, trade was severely hindered. Egypt is a nation that relies heavily on imports, and most items were overpriced. This includes vehicles, entertainment, raw building materials, and even most food items.
The devaluation of the Egyptian pound is not going to be without growing pains. The fixed rate had been 8.8 pounds/dollar, but directly after the devaluation occurred, it dropped to roughly 13.0. That’s a change of roughly 32 percent. In a major currency pair, like the GBP/USD or the USD/JPY, that would be a catastrophic move. It’s something that we should expect for a while though, as the Egyptian pound finds a level that traders agree is realistic, and then finds an increase in volume in order to support a more stable price. For traders, this is a dangerous time. Although huge opportunity for profits does exist, the exact opposite is just as likely. Because so much unknown volatility is present, huge losses have the same probability of occurring. It is not currently a market for speculators.
If you’ve been following the Federal Reserve drama in the United States, you will observe something interesting out of Egypt. In order to give the currency stability, the CBoE announced that they would be raising interest rates on their treasuries by 300 basis points. We see the same decisions occurring out of the Fed, although instead of 300 points, we are looking at 0.25 percent, roughly. The difference is one is the world’s largest and most stable economy, the other is a struggling one with huge potential for growth.
Oddly enough, observing the trends that had been occurring in black market pound trading can be a helpful guide for what is going to happen now that devaluation is a reality. In fact, this is something that the Central Bank of Egypt was observing when they made their decision. The pound had dropped to 18 pounds/dollar recently, causing importers to stop buying the dollar altogether. However, when it rapidly moved to 13 pounds/dollar over the span of a few hours, an opportunity to devalue emerged. The Central Bank seized it.
It’s a huge opportunity for Egypt. Ever since 2011 when political uprisings drove away much of its main source of income—tourism—the country has been struggling financially. This was one of the country’s biggest sources of trade, too. This is a slight difference, but not only was tourism bringing in money touring historical sites, but other currencies and merchandise items were brought into the country as a result of this. Tourism kept markets moving here, and when it dried up, the economy ceased to function at the high level that it had been.
The inherent volatility that will occur for the next several months is something that binary options traders may or may not be privy to. Many Forex brokers will pick up the pound soon, creating more opportunities for traders in this market, but how this will play out in the binary options market remains to be seen. Eventually, many binary option brokers will pick up the pound because it is one of the major developing currencies, but this may take some time. It could be several months, or even a couple years. If this is an opportunity that interests you, it’s something that you will need to be on the lookout for over the coming weeks.