Against the UAE dirham, the British pound is expected to slip further from its current level of 0.22 in the coming weeks, while the euro is expected to remain steady at a low level of 0.25. Here's how you can take advantage of these upcoming rates.
Dubai: When it comes to sending money back home, it is vital to know whether it is currently an ideal time to remit. To understand whether it is or isn’t, one should first find out if your currency back home is expected to rise or fall in the days to come.
Here is an analysis of how currencies like the British pound and the euro have been performing and expected to perform in the coming weeks, to help understand whether remitting money now is profitable or cost-effective, or should you wait it out for a few weeks for a better rate to come along.
Although the above-mentioned currencies don’t fluctuate as much as South Asian currencies like the Indian rupee, Pakistani rupee and Philippine peso, however small, the changes will result in bigger British pound or euro savings, the more UAE dirhams you remit.
If a currency is expected to weaken or depreciate, it's prudent to take advantage of more remittance-friendly rates after it drops further, rather than now. On the other hand, when it comes to currencies that are expected to appreciate in values, it would be cost-effective to remit now, as the rates would only rise over the near term.
British pound to get stronger or weaker?
“The British pound’s exchange rate has been on a rollercoaster ride in the past many months, which would have understandably made it difficult to time remittances and overseas transactions,” explained Amit Trivedi, UAE-based forex analyst and trader. “But not anymore, given its rates now.
“After a year of steady decline, the pound plunged to an all-time low below 1.10 against the US dollar, which caused it to drop against UAE dirham as well. It then recovered to 1.16 and sank back to 1.11 after it was warned that the UK had begun its longest-ever recession in November.”
However, Wall Street's biggest banking name Goldman Sachs this week revealed that it is turning slightly more positive on the pound's prospects, but added that it is still too soon to get outright positive. Goldman Sachs forecasts the pound to dollar exchange rate to stabilise at 1.18 over the next three months, 1.19 for a six-month horizon and 1.25 for a 12-month horizon.
“Given that the currency has been on a declining trend, the pound is widely expected to slip further in the weeks to come. Against the UAE dirham, the British pound is seen slipping further from its current level of 0.22 in the coming weeks, enabling you to cost-effectively remit,” added Trivedi.
“Because of sterling’s fall against the dollar, would-be UK-based investors now might not be the best time to invest reduced pound in shares or global stocks, which are mostly dealt with in US dollars,” noted Brody Dunn, an investment advisor at a global wealth management firm.
“UK-based savers, too, might finally have something to smile about as cash deposits are finally beginning to pick up, albeit still well below the rate of inflation.”
Euro to get stronger or weaker?
The euro had a turbulent 2022, evaluated Trivedi, “as investors rushed for safety on the prospect of a severe economic recession in Europe amid the ongoing conflict in Ukraine, rising borrowing costs and stubbornly high inflation.”
Against the US dollar, the euro had a steady downtrend across the last year. It kicked off 2022 at 1.14, then rose to 1.2 in early February, before falling to a low of 1.0 on May 13 – levels last seen in January 2017. “However, such weakness would result in improved remittances overseas,” he added.
Analysts at US-based lending giant JP Morgan had predicted that, against the US dollar, the euro will touch 1.10 in March 2023, as it did, before declining to 1.08 in September 2023 and holding at 1.08 in December 2023. So a depreciating trend implies more value for money when remitting.
However, forex strategists at rival Morgan Stanley revealed a new forecast of the euro at 1.15 by year-end, a revision to their previous forecast of 1.08, against the US dollar. This implies a wait-and-watch for remitters, but safe to say the currency will likely stay at its current low levels for now.
The euro is still much stronger than it was against the pound in the 1990s and for most of the 2000s; but the pound’s depreciation is a long-term trend since it was allowed to float freely in 1971.
“If you only concern yourself with exchange rates only when you’re about to head off abroad on holiday, know that changes to the currency’s value have wider ramifications beyond the price you’ll pay overseas,” said Anil Pillai, a UAE-based banking analyst specialised in forex payments.
“When it comes to remittances, it is important to understand that, while sterling has fallen to a level not seen for fifty years, the currency has been lower against the euro at the height of the financial crisis in 2008, and still bounced back. So it does brighten the remittance prospects for expats.”
When it comes to the euro, however, fortunes may be changing. As of March 13, the euro’s exchange rate was at 1.0675, up 5.5 per cent in the last six months, against the US dollar. If this trend continues, it would mean that it would be comparatively cost-effective to remit now.