The Emirati Dirham made gains against the Pound (GBP) and other peers as economists forecast that the Gross Domestic Product (GDP) of the United Arab Emirates (UAE) will not be negatively affected by falling oil prices as the nation benefits from its currency’s pegging to the strong US Dollar (USD).
With the UAE being one of the world’s largest oil producers the nation’s economy should be coming under pressure from the recent run of sharp declines in the value of the commodity. However, thanks to the Dirham being pegged to the US Dollar, the impacts of the run of price drops has been negated.
‘Lower oil prices will affect us but we have financial capacity in terms of banks and sovereign wealth funds. Banks are in a good position today. Business is as usual. Being pegged to the US Dollar helps the UAE. We export to neighbouring countries whose currencies are linked to the Dollar. When you are linked to the Dollar you have to be in sync with your monetary policy,’ said Mubarak Al Mansoori, Governor of the Central Bank of the UAE. The AED exchange rate received support after the governor also said that the UAE’s peg with the US Dollar is set to stay.
The Pound Sterling softened against the Dirham on Monday as economists widely brushed off a better than forecast UK Manufacturing Purchasing Managers Index (PMI). Market research group Markit said that its U.K. manufacturing purchasing managers’ index rose to a seven month high of 54.1 last month from a reading of 53.1 in January. Analysts had expected the index to inch up to 53.4 in February.
Following the release of that report the Pound inched higher. Economists widely shrugged off the data and instead focused on the Bank of England’s upcoming interest rate and quantitative easing decisions. Policy makers are forecast to leave interest rates unchanged at the record low level of 0.5% and maintain its monthly bond-buying programme at £375 billion. As Monday’s session, progressed economists raised their bets that the BoE will not raise rates for as long as inflation remains weak.
Against the US Dollar, the AED exchange rate inched higher following the release of disappointing US data. According to the Washington based Commerce Department, US personal spending fell by 0.2% in January, worse than the 0.1% decline forecast.