Egyptian Pound to Icelandic Krona (EGP/ISK) Exchange Rate Forecast to Trend within Narrow Range even as Central Bank of Iceland Raise Rates

Although Egyptian Urban Consumer Prices and Core Consumer Prices spiked on Wednesday, the Egyptian Pound softened versus many of its major peers. The depreciation can be linked to geopolitical upheaval after news that a suicide bomber attempted to attack the tourist destination of Luxor. Mohamed Badr, governor of Luxor, said the bomb went off after the terrorist was shot by an officer. ‘There was a terrorist attempt in Karnak temple area, three terrorists were trying to attack. One of them was shot by security causing the expulsion of the explosive belt on him, the second was trying to use his gun when security shot him dead. The third was injured [and] moved to Luxor international Hospital. We have not interrogated him yet to know who is behind the attack,’ stated Mr Badr.

The Egyptian Pound’s depreciation has been somewhat slowed, however, after inflation jumped in May. On the year, May’s Inflation Rate increased from 10.96% to 13.1%. ‘The jump in Egyptian inflation to 13.1 percent year on year in May was almost entirely driven a sharp rise in food inflation and, as a result, we don't expect it to have an impact on the MPC's rate decision tomorrow,’ Capital Economics said in a research note. ‘But equally, it means that the chances of the central bank cutting rates later this year have now diminished.’

The Egyptian Pound to Icelandic Krona (EGP/ISK) exchange rate is currently trending in the region of 17.3136.

After the Icelandic government ended a seven-year period of capital controls, the Central Bank of Iceland (Seðlabanki Íslands) increased the benchmark interest rate for the first time in 2 and a half years. The seven-day collateral lending rate was raised to 5.75% from 5.25% which signals a recovery taking hold in Iceland. ‘The outlook for developments in wage costs, the increase in inflation expectations, and indicators of robust demand growth make it unavoidable to respond to the worsening inflation outlook now, even though inflation is still below target,’ the central bank said. ‘It seems apparent that a sizable rate increase will be necessary in August, followed by further rate hikes in the coming term, so as to ensure price stability over the medium term.’

Although the increased cash rate was expected by most analysts, the Krona softened versus many of its peers. This can be attributed to the central bank warning of a steep and rapid increase in the cash rate over the next few months. ‘The hike was in line with market expectations but the statement from the central bank had a harsher tone than many anticipated,’ said Valdimar Armann, an economist at GAMMA in Reykjavik. ‘They’re basically saying that rates may go up by another 50 basis points in August, and then there may be more increases after that. It seems to be materializing that the process of raising rates will be fast and steep.’

Given the absence of further domestic data publications to provoke changes for the pairing, the Egyptian Pound to Icelandic Krona (EGP/ISK) is likely to hold in a tight position for the remainder of Wednesday’s European session. With that being said, however, the Egyptian Pound could extend losses if geopolitical developments deteriorate or it is found that ISIS have now broke through to the African tourist hotspot.