Egyptian shares leapt 7.32 percent on Thursday in response to the army removing President Mohamed Mursi.
Investors’ costs for insuring against the Cairo government defaulting on its debt also fell.
The renewed confidence in the financial markets comes amid hopes for greater stability in the country battered economy:
But the removal of the Muslim Brotherhood government could put even greater pressure on Egypt’s finances.
It creates uncertainty for a badly needed $4.8 billion (3.7 billion euro) International Monetary Fund loan and upsets major donors such as Turkey and Qatar.
“While essentially this takes Egypt back to square one and delays any chance of economic progress and an IMF deal even further, we think that ultimately it creates a window of opportunity for a more stable government to be put in place,” said Dina Ahmad, a strategist at BNP Paribas.
Egypt has hard currency reserves to cover less than three months of its imports and the central bank could find it hard to defend the Egyptian pound, which is trading at record lows against the dollar.
“There are therefore important implications for the stability of the pound as well as government finances going forward, particularly given that the Egyptian economy is already on the verge of meltdown,” Ahmad added.
Foreign exchange traders said the pound had strengthened marginally on the black market and on the official market.