A strong US dollar in October positively reflects on UAE dirham

Peg to the greenback allows currency to be shielded from number of risks


Somshankar Bandyopadhyay

  • Follow us on
  • google-news
  • whatsapp
  • telegram

Top Stories

Published: Wed 11 Oct 2023, 8:15 PM

Despite Wednesday’s losses, the US dollar continues to be as resilient as ever, drawing a positive outlook for the currency during the month of October 2023.

According to Amro Zakaria, senior market analyst, Mena at Forex.com, part of StoneX Group Inc – the outlook for the US dollar in the current month appears robust due to a confluence of factors.

“A recent rally in the dollar, fuelled by a widening global economic divergence, is expected to endure over the next few months. Country-specific drivers and regional growth rotation trends play significant roles in shaping the dollar’s performance”, Zakaria told Khaleej Times.

Positive economic data from the United States has also contributed to the dollar’s strength. This data suggests that the Federal Reserve may maintain higher interest rates for an extended period, attracting foreign capital and bolstering the currency’s value.

“The divergence in economic growth and yields between the US and other major economies further supports the dollar’s strength, with expectations of continued outperformance”, Zakaria added.

Amro Zakaria, senior market analyst – Mena at Forex.com
Amro Zakaria, senior market analyst – Mena at Forex.com

Moreover, persistent inflation caused by elevated oil prices, low unemployment, and robust consumer spending is being bolstered by increased expectations of higher interest rates, potentially including an increase in the Fed’s benchmark rate. This is further solidifying the US dollar’s stance.

Regionally, how does such a strong dollar reflect on the economy, especially in the UAE? Observers confirm that when the dollar’s outlook is positive, the currency often stays strong for longer, and with the dirham being linked to the dollar, this also means a strong dirham that’s protected from exposure to inflation. A positively stable dollar outlook also means less risk for any party seeking to invest in dirham denominated stocks or assets in emerging markets, which gives another boost to UAE’s financial markets.

It is noteworthy, however, that a weaker dollar doesn’t necessarily mean a weaker UAE economy. In fact, if and when the dollar weakens in a low inflation environment, the UAE’s tourism, hospitality, and exports become more competitive, benefiting the local economy.

A part of StoneX Group Inc, Forex.com is one of the world’s most established retail trading brokerages with over $8.5 billion in trader assets.

More news from Business