UAE expats told not to panic as dollar rates get gloomier

If you’re a USA professional relocating to the UAE and have a mortgage or other financial commitments in the home country, keeping an eye on the dollar weighting might be a good idea.

During 2017, the almighty dollar lost around 10 per cent of its value when measured against a basket of global currencies. Its first decline for five years and the largest annual fall for 14 years was bad news for US expats across the world committed to regular remittances to their banks in the USA. It was a worse scenario for expats living ad working in the UAE, as its currency is pegged to the dollar, meaning earnings paid in dirhams lost their value in relation to other currencies. For spending in the UAE, a shrinking dollar causes only minor problems due to its reduced purchasing power driving up import costs. However, for those committed to regular overseas financial commitments such as a foreign currency mortgage, repayments increase sharply, and foreign investments priced in dollars decline in value.

The ‘dollar dump’, as its being called, is initially down to the Federal Reserve’s hiking of interest rates three times in 2017, with more hikes forecast to take place during this year and 2019. It’s normal for interest rate increases to bolster the value of the local currency, as more global investment is the result of better returns. However, even although the US now has higher rates than most other major world economies including the Eurozone at zero per cent and the UK at 0.5 per cent, the positive effect is wearing off. Markets are focusing on the Bank of England and the European Central Bank, both of which are expected to raise rates again this year.

At the present time, sterling and the euro are strengthening as the dollar declines, with its 14 per cent drop against a euro pushed up by a fast economic recovery. It’s also seen an 11 per cent drop against sterling in spite of gloomy Brexit forecasts. However, according to the experts, expat dirham-earners shouldn’t panic even though forecasts for the dollar suggest a further drop of up to 10 per cent. Currency swings go both ways and the results usually balance out any long-term investment requirements.

Obviously, UAE expat professionals are slightly less rich than they were in 2017, with the trend likely to continue, but investment opportunities are on the rise as a result. Making the best of the weakened dollar involves rebalancing your investments in favour of emerging markets, as well as to Europe and even the UK, despite its current Brexit problems.