The Egyptian pound weakened to an eight-year low after the president Mohammed Morsi revoked a disputed decree and a plan to increase taxes, sparking uncertainty about the government's ability to set policy amid unrest.
The currency, which is subject to a managed float, weakened 0.3 per cent to 6.1456 a dollar in Cairo, the lowest since December 2004, according to prices compiled by Bloomberg.
The pound has depreciated 0.9 per cent since Mr Morsi issued a decree last month to grant himself sweeping powers. Weeks of nationwide protests prompted the president to scrap the decision last week. The pound's drop in the past 18 days is almost equal to the 1 per cent it lost this year before the edict. A plan to increase taxes on products and services including cigarettes, property and electricity, was cancelled to allow for "societal dialogue", the state-run Middle East News Agency reported.
"There's a lot of confusion and uncertainty in the market regarding the government's decision-making process after recent revocations," said Khaled Abdel Hamid, the head of treasury at United National Bank Egypt. "It creates panic in the market and real pressure on the currency."
The finance ministry said last month that the central bank would seek to maintain an exchange rate policy that "avoids sharp swings" as the government signed an initial agreement with the IMF for a US$4.8 billion loan. Egypt's official reserves have slumped 58 per cent since an uprising started in January last year to $15bn last month.
The government has been seeking foreign aid and selling domestic debt to raise funds for its budget deficit. Unrest between the supporters and opponents of Mr Morsi, an Islamist politician, in the past three weeks drove up borrowing costs, forcing the government to cancel the past two sales of seven-year securities as investors raised their yield demands.
The government is pressing ahead with a referendum on Saturday on a new constitution that has divided the country and caused violent protests.
* Bloomberg News