Over the past month, the Pound Sterling to Emirati Dirham (GBP/AED) exchange rate was trending within the range of 5.5774 – 5.8485.
The Emirati Dirham has been trending lower since the turn of the month as the result of a bearish US Dollar. With North American ecostats promoting a sense of slowing growth, traders have pared bets as to the timing of a Federal Reserve interest rate hike. The most recent Federal Open Market Committee (FOMC) meeting showed that policymakers were not planning to hike the benchmark interest rate in September, as most economists had forecast. In addition to tracking US Dollar losses, the Dirham also depreciated in response to bearish oil prices after OPEC announced it would not reduce production. With production outpacing demand significantly, and with renewable energy sources becoming ever more competitive, many predict that oil prices will remain low for a sustained period.
The Pound Sterling to Emirati Dirham (GBP/AED) exchange rate advanced considerably after British labour market data printed positively. With UK wage growth accelerating and inflation remaining low, many expect the Bank of England (BoE) to increase the cash rate within the year.
The Dirham recovered some of its losses, however, after the United Arab Emirates (UAE) launched a state-owned bank to finance housing and other projects for UAE citizens. The Emirates Development Bank (EDB) was created by merging the Emirates Industrial Bank and Emirates Real Estate Bank. Deputy Prime Minister and Minister of Presidential Affairs of the UAE, Sheikh Mansour Bin Zayed Al Nahyan, said ‘it was a key addition to the banking sector in the UAE that will boost overall growth of the economy and provide Emirati people with services that help them achieve key milestones in their lives, such as owning their own homes, in addition to supporting Emirati entrepreneurs and the SME sector.’
Despite the fact that the Dirham strengthened in response to the opening of the EDB, the British asset is still holding significant gains. This is mostly the result of a bearish US Dollar after data showed that North American Core Consumer Prices declined in May. This suggests that the Federal Reserve will delay a rate hike until inflation picks up.
Looking ahead, the Pound Sterling to Emirati Dirham (GBP/AED) exchange rate is likely to continue trending higher. This is because traders are bringing forward BoE rate liftoff bets, and delaying Fed bets. Additionally, with oil prices showing no signs of recovery as production continues to outpace demand the Dirham is likely to be subject to downwards pressure. One important economic data release which will have an impact on the GBP/AED pairing is the final figure for first-quarter British growth, due for publication on June 30
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