Reviving US dollar will cheer up expats

For the thousands of expatriates who toil away in Dubai to support their families back home, there's probably no piece of news better than a rising US dollar. Given that the UAE dirham is pegged to the American currency, any movement in the greenback is reflected in the exchange rate of the dirham against expats' home currencies. It makes sense then that a rejuvenated greenback brings good fortune.

The US dollar has recently rallied against almost every major currency, jumping more than six per cent against the euro between March and August alone. India's rupee fell eight per cent against the UAE dirham, while the Philippine peso appeared bearish, slipping by a little over 11 per cent and the Pakistani rupee plummeting by 20 per cent, according to published figures.

When the dollar fell seriously hard against the euro, sterling and other Asian currencies months ago, expatriates in the UAE took a beating, as every dirham they were wiring back home saw significant diminishing returns.

That didn't take into account the rising cost of food and housing, and the 11.1 per cent inflation that expats had to battle with in the UAE. The woes of inflation-stricken expats certainly put added pressure on authorities to consider abandoning the US dollar.

Certainly, the impressive strength in the greenback has rekindled hopes of the more than 3.6 million expats in the UAE that their hard-earned money will buy more in their home countries. Worries over rising inflation have eased a bit.

"Inflation was a huge topic of conversation in Dubai months ago when the dollar was weak. It was a very painful time. Now that the dollar has strengthened, inflationary concerns are minimised," says Boris Schlossberg, director of Currency Research at Global Forex Trading.

A big number of expats in the UAE, particularly those from the Philippines, India and Pakistan, send a huge chunk of their salaries home.

The stronger dollar will definitely encourage a lot of expats to make the most of the situation by limiting their spending in Dubai so they can send more money to their countries.

"The rise of the US dollar has been great for me and I'm sending as much money back as I can afford to each month at the moment," says Lorraine Pacey, an expat from Australia.

What it also means is that those who have fixed fin-ancial obligations back home such as school fees, mortgages, retirement funds and regular expenditures may have more leftover money to spend here in Dubai because they only need to shell out less dirhams each month to settle those dues.

Putting Dubai's cost of living and other issues aside, things are indeed looking good. But that's no reason to rush into celebration mode yet.

The tremendous moves of the greenback may not last very long.

Analysts say the US decision to shore up its banking sector, the decline in oil prices and the sell-off in equities may have caused the dollar to regain its strength, but the financial storm is still hovering over everyone's head.

The market remains volatile and turbulent, and it requires a very intelligent analytical framework to try to figure out what exactly moves it when and how.