The Emirati Dirham strengthened against the Pound Sterling as oil prices rose to nearly $62 a barrel and as investors’ grew concerned ahead of the release of UK inflation data, which could show that the nation experienced negative inflation last month.
Oil prices rose to $62 per barrel as production of the commodity was affected by the destruction of a Libyan oil pipeline over the weekend and an escalation in the conflict against the Islamic State. Economists are also forecasting that global oil supplies will lessen in the second half of the year as non-OPEC members reduce production as low prices begin to bite.
Egyptian warplanes bombed a number of sites in Libya with the aim of destroying IS positions in the North African country. The attacks mark an escalation in the campaign against the murderous Jihadist group and raised concerns that violence will increase in a major oil-producing nation. The attacks came in response to the beheading of 21 Christian Egyptians who were abducted earlier in the year.
The fight against IS will likely impact upon oil prices further as the group continues its campaign in Iraq and Syria. A coalition led by the USA, which includes the United Arab Emirates and other Arab nations, is set to increase in scale as the conflict escalates further.
Egypt and the United Arab Emirates is among the key supporters of Khalifa Heftar, a renegade Libyan general, now allied with the recognised government and leading a campaign against a rival Islamist-leaning government in Tripoli and its allied militias.
Oil exports out of southern Iraq have fallen sharply in February, exports are now below the 1.5 million barrels per day level as the war against IS disrupted production.
Also sending oil prices higher were comments made by Kuwait’s oil minister who said that oil prices would continue to rise in 2015 as supply levels continue to fall.
Also supporting the UAE currency was news that credit rating agency, Fitch affirmed Abu Dhabi’s AA rating with a stable outlook.
The Pound Sterling meanwhile was softened on expectations that inflation in the UK entered negative territory in the first month of the year as tumbling oil prices sent consumer prices falling.
Despite the worries over low inflation, the Bank of England and Confederation of British Industry (CBI) believe that falling prices could lead to a strong resurgence in the UK economy which could lead to a sooner than expected hike in interest rates.
Also set to influence the Pound will be the release of unemployment and average earnings data. Unemployment is expected to stay at 5.8% and average earnings are forecast stay steady from the preceding month. Also of interest will be the latest Monetary Policy Committee meeting minutes.
The Emirati Dirham is likely to make further gains if oil prices rise further and the conflicts in oil producing nations continues to put pressure on global supplies.
The Pound Sterling to Emirati Dirham (GBP/AED) Exchange Rate was trading in the region of 5.648 on Monday.