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What could be in store for the UAE this month?

3rd August | Dubai

Written by Jameel Ahmad, VP of Market Research at FXTM

Following the USD suffering five-months of consecutive losses, currencies that are pegged to the Dollar are beginning to notice gradual declines against other global currencies. This includes the UAE Dirham (AED), which is now showing signs of weakness against major currencies like the Euro, British Pound, and Australian Dollar. This is the first time since 2011 that the Dollar Index has encountered so many monthly consecutive losses. With political uncertainty continuing to attract headlines over potential unrest in Washington delaying President Trump pushing forward his promised legislative reforms, it can’t be ruled out that the Dollar could be heading for six months of weakness. This ultimately means that there is a threat that the AED will slip further against major currencies in August.

While currency weakness might be alarming to those who have become used to a strong AED in recent years, there is an upside to the UAE economy following the shift in investor sentiment towards the Dollar. Like all economies that are reliant on exporting Oil, AED weakness should help the UAE economy when it comes to the non-oil sector. Industries such as hospitality, tourism and perhaps even the retail sector could see positive outcomes from a weaker currency.  It’s a potential trend that I believe should be monitored. Given the current status quo, it doesn’t appear that the current negative sentiment towards the USD is likely to alter soon.

There will be focused attention on the UAE in August, due to the fact that the OPEC meeting will take place in the Emirates next week. The OPEC cartel is widely expected to discuss ways to improve compliance, with concerns that some participants within the production cut agreement, have not been following the output quota. OPEC appears to be confident that its strategy to rebalance the market is working, and if the cartel is able to display further confidence in the ongoing reductions in the oversupply next week, it will potentially have a positive impact on the price of Oil.

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