Egypt’s pound, which breached the milestone of 50 per dollar to hit a record low this week, may rebound in early 2025 as a series of seasonal portfolio outflows taper off, according to Goldman Sachs Group Inc.

The currency fell to 50.8 on the offshore market on Thursday, the latest in an almost uninterrupted six-week streak of declines. It’s a sign of greater flexibility for the pound, which saw long periods of stability after authorities in March enacted their fourth devaluation since early 2022.

Driving the decline in December was a “huge spike” in redemptions of shorter-term Treasury-bills that were issued earlier this year, with investors opting for year-end profit-taking, said Farouk Soussa, Goldman’s economist for the Middle East and North Africa. This is leading to a “lower roll-over of positions,” particularly as the finance ministry has until recently resisted raising yields at auction in order to keep the cost of borrowing down, said Soussa.

But with Egypt’s central bank likely to start cutting record-high interest rates in the first quarter, “a greater issuance across the curve, including in long-dated Treasury bonds, is expected,” according to Soussa. This will give investors a chance to re-enter the local market, which should “lend support to the pound,” he said.

There was also “significant overshoot” during March’s devaluation that’s yet to correct itself, Goldman’s economist said.

The performance of Egypt’s pound is being closely watched, both by investors seeking high returns and the International Monetary Fund, which wants the currency to accurately reflect supply and demand. Mired in a gruelling economic crisis earlier this year, authorities let the pound plunge 40% and hiked interest rates to a record in March, securing an expanded $8bn loan from the Washington-based lender.

After those moves, investors piled into the North African nation’s nine-month and one-year bills in short order — notes that are in part now maturing.

“Positioning had been very heavy, and it’s natural to see some clearing out toward the end of the year,” said Razan Nasser, a sovereign analyst at T. Rowe Price. There may be a “pullback in the pound at the start of the year as some re-enter the trade,” she added.

Carry traders, who borrow when rates are low to invest when they’re high, still see Egypt as an attractive proposition, according to Nasser. “The 30% yield provides a generous buffer for FX weakness.” According to a recent Emerging Markets sentiment survey by HSBC, Egypt is the “most popular” market in the Middle East among investors who are “positive” on the North African country, as seeing it “having a more favourable outlook,” HSBC said in a report.

Giving reassurance is the broader global bailout of some $57bn pledged to Egypt this year as the IMF, European Union and others rushed to help a nation seen as crucial to regional stability while conflict engulfed others parts of the Middle East.

Any pressures from persistent external deficits are “manageable” given “the replenishment of buffers Egypt enjoyed this year,” Nasser said.

Egyptian Prime Minister Mostafa Madbouly on Wednesday said the IMF is expected to complete the latest program review “in days,” which would clear the path for the disbursement of a $1.3bn loan tranche.

A more flexible exchange rate and IMF-backed reforms are “antidotes to the boom-bust cycle that characterized the Egyptian economy in recent history,” said Hussein Khattab, portfolio manager at Morgan Stanley Investment Management.

Long-term investors should have “relief” that “the pound is not being defended at the supposed psychological levels,” he said.