How will Brexit affect UAE investments in UK?

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How will Brexit affect UAE investments in UK?
The euro-pound trade relationship has been quite volatile over the last two years.

Dubai - Imports from the UK would become cheaper

by

Sandhya D'Mello

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Published: Sun 26 Jun 2016, 6:14 PM

Last updated: Sun 26 Jun 2016, 10:39 PM

UAE investors investing in the UK might see a fall in value of investments. Hence, it might see a flight of capital back to the UAE, Markaz senior vice-president of research M.R. Raghu said on Saturday.
"Imports from the UK would become cheaper as the UAE imports a lot of luxury cars from UK manufacturers such as Bentley, Aston Martin, etc, which would become cheaper. This would also impact tourism from the UK, since the UAE's currency would appreciate against the pound. Expats from the UK might demand an increase in pay since they would be sending fewer pounds back home," he said.
Raghu added that the euro-pound trade relationship has been quite volatile over the last two years with 2015 witnessing higher appreciation for the pound (over 1.3 levels) but 2016 has seen it depreciating on account of fears of a Brexit.
"Forecasting currency patterns over the next two years is very difficult. However, over the short term, the pound is expected to stay pressurised. On account of the vote, the pound fell from over 1.3 to around 1.22 [against the euro]. However, on account of business and political concerns and its closeness to the UK, the euro is expected to face pressure from other currencies. Countries like Ireland, the Netherlands and Belgium might face more pressure on their respective economies through their mutual trade with the UK," said Raghu.
The value of the pound dropped more than six per cent against the euro. On Saturday morning one pound would now buy you ?1.23, which means holidaymakers travelling to eurozone countries will get significantly less when exchanging money.
As the Leave campaign gathered momentum, sterling fell to a 31-year low on currency markets and was on course for its biggest one-day loss in history.
Fawad Razaqzada, technical analyst at Forex.com, said: " I think the euro will fall further because of Brexit. All of a sudden, question marks are being asked about the whole EU project, and so risks that the EU could fall apart should keep the euro under pressure."
It shed around 10 per cent of its value, dropping from $1.50 to below $1.35 in a six-hour free-fall after Brexit was confirmed. Asian markets also tumbled, with Tokyo, Hong Kong and Sydney all falling as trading began. The pound-to-dollar exchange rate was at its lowest level for more than 30 years after Brexit.
John J. Hardy, head of forex strategy at Saxo Bank, said: "The euro-pound pair will reverse considerably from the extremes and one of our points of interest going forward will be the degree to which the Brexit feeds an EU existential crisis. Signs of this are already evident in a tremendous widening of peripheral bond spreads. If the pair is able to fully reverse this result and close below perhaps 0.7900, the bears will have a compelling case. Otherwise, if the euro retains the upper hand, the next focus point is 0.8375 and then possibly 0.8700."
- sandhya@khaleejtimes.com


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