Dubai: A spike in the euro is expected to benefit the UAE’s economy particularly in sectors such as real estate, tourism, retail, and trade, analysts said, especially as the US dollar also weakens.
On Tuesday, the euro touched its highest level since January 2015 as the currency reached $1.20, with analysts expecting it to continue to rise. The uptick puts the euro’s total increase against the dollar so far this year at 14.3 per cent.
“The strengthening of the euro, and broad-based US dollar weakness, is very positive for boosting the UAE’s externally-facing sector. The stronger Eurozone growth outlook should also support key UAE sectors such as trade and tourism,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank.
The gain in the euro comes as the dollar weakens, with the dollar index having fallen 10 per cent so far this year as investors lose faith in new government policies being implemented namely new health care bills or tax reforms.
US economic data has also failed to excite investors too much as inflation remains weak. And for the US Federal Reserve, that could mean a delay in plans to raise interest rates, thus adding further pressure to the dollar.
“The euro has been rising since the beginning of this year, and we’ve been watching whether it will cross the $1.20 level, which is kind of a psychological resistance level, and it did. The next question is whether this rally will continue or not, and I think some kind of a momentum trade will continue for some time,” said Hussein Sayed, chief market strategist at FXTM.
He added that the euro could reach $1.25 before the end of this year.
“Judging by the last couple of months, it doesn’t look like the dollar weakness is temporary; it looks like it’s going to be the case for the longer run. If this is the case, this will definitely benefit the UAE, especially the tourism and real estate sectors. For European investors, real estate is 15 per cent cheaper than it was last year,” Sayed said.
On Friday, when Federal Reserve Chair Janet Yellen made a speech at the annual gathering of central bankers in Jackson Hole, she did not mention monetary policy outlook, leaving investors and analysts to speculate that the Fed was in no hurry to raise interest rates. And for the dollar — to which the UAE dirham is pegged — that could mean further weakness.
The uptick in the euro against the dollar on Tuesday came after North Korea successfully filed a missile that flew over Japan. The launch also rattled investors across the world who fled riskier assets, namely equities, with European, Asian, and American stock markets in a sea of red.
