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FILE PHOTO: U.S. dollar bills are seen on a light table at the Bureau of Engraving and Printing in Washington, November 14, 2014. REUTERS/Gary Cameron/File Photo Image Credit: REUTERS

Dubai: Even with the US Federal Reserve not going in for another interest rate hike Wednesday (September 20), that hasn’t stopped the dollar from inching higher. That leaves UAE businesses – especially those with overseas exposures through direct operations or exports – in a bit of a tight spot.

They aren’t the only ones who should be looking at the interest rate scenario and go in for a deep think. “We are concerned for businesses that have high debt levels,” said Gary Dugan, Chief Investment Officer at DIFC-based Dalma Capital.

“We believe too many businesses – and commentators – have been complacent about how long interest rates could stay at these elevated levels. We would assume there could be still further increases in US policy rates – and could stay at these levels for a good 12 months.

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It is also the case that higher interest rates are normally associated with tighter broad credit conditions, meaning less appetite on the part of banks to lend.

- Gary Dugan

That’s Dugan, an ex-banker, laying all the downsides on the table with interest rates in a higher-for-longer scenario. On Wednesday, Fed Chair Jerome Powell did nothing to dispel the impression that the US will soon start cutting interest rates, which are currently at two-decade highs.

The UAE, with its dollar peg, has matched the 11

rate hikes since March 2022.

This has, of course, helped immensely in ensuring ‘imported’ inflation has been kept in check through the last two years. “Whether it’s shipping in food or any other merchandise, the dirham’s strength through the dollar peg has been decisive,” said an FX analyst.


The dollar index – which tracks the greenback’s strength (or otherwise) against a basket of key currencies – is up 0.32 per cent since yesterday at 105.53. While healthy, the index score is well below the 114 from a year ago.

Those elevated levels sure bit into some UAE companies’ H1-23 numbers. For instance, the food giant Agthia mentioned the currency factor for its lower returns from its Egypt presence. (The Egyptian pound too had gone through devaluation in the interim.)

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Even while down to 105 levels, the dollar index retains sufficient strength and that requires UAE businesses to be quite vigilant about their cash reserves.

According to Bal Krishen, Chairman and CEO of Dubai-based Century Financial, “The dollar index dropped about 5 per cent in the past year - this may not have been felt by many UAE businesses as the dollar gained against currencies of some of their key trading partners.

It has risen by 3.32% against the Chinese yuan and 4.07% against the Indian rupee in the period. This means that UAE’s CFOs - both from the exporting and importing sectors - are facing unprecedented FX fluctuations.

- Bal Krishen

“CFOs should be hedging their dollar exposures and protect their bottom-line from FX risks. Some possible hedging strategies include using forward contracts, futures and options contracts, or currency swaps to secure favourable exchange rates and reduce downside risks.”

Hamid Shah is CEO of, a business that’s into used-car sales, and has felt both sides of a strong dollar-dirham equation.

In the 4x4 industry, most models we deal with are imported from the US and the trade happens in US dollars

- Hamid Shah

“Also, we have Marhaba Cars Auctions, where we import salvaged cars from the US and Canada and sending these to Iraq and other countries,” said Shah. “Yes, we can say that the strength of the dollar has had a great impact on our businesses.”

In the short-term, businesses hoping to sell overseas or win export contracts will need to tread lightly. This is where the dollar’s strength can come back to bite them quite sharply.

What chances of a dollar slide?

Dugan for one believes the dollar should continue along current levels for a while yet. “Given the high US long- and short-term interest rates, we expect the dollar to maintain its value against other currencies,” he said. “Despite our misgivings about the long-term fundamentals of the US economy.

“Only a US financial crisis could upset confidence in the dollar at this juncture. Such a crisis cannot be entirely ruled out given the sharp increase in interest rates over the past 12 months…”