Economic Analysts Predict Positive Outlook for the UAE Dirham, Dollar, and Local Equity Markets Under Trump’s Presidency
The unexpected victory of Donald Trump in the 2024 U.S. presidential election is already having noticeable effects on global financial markets, particularly the UAE dirham, which is pegged to the U.S. dollar. As Trump’s win became apparent on November 6, the dollar surged nearly 2%, hitting a four-month high, and subsequently, the UAE dirham followed suit, gaining against several major currencies, including the euro, Japanese yen, and emerging market currencies such as the Mexican peso, Indian rupee, and the Philippine peso.
Financial analysts agree that Trump’s return to the White House could have a positive impact on both the dollar and the dirham, bolstering the UAE’s economic standing and improving its equity markets. This comes after Trump’s decisive defeat of Democratic rival Kamala Harris, which was initially seen as a close race but has now resulted in what some are calling his political comeback.
The Dollar Surge: A Boon for the Dirham
George Pavel, the general manager at Naga.com Middle East, highlighted that the dollar’s recent surge has already benefited the dirham, which moves in lockstep with the U.S. currency. Pavel noted that while initial market reactions have caused some volatility, the long-term outlook for the UAE dirham remains positive, particularly against emerging market currencies, as it closely tracks the dollar’s movements. According to Pavel, the key factor to watch will be Trump’s trade policies, as these could influence the strength of both the dollar and the dirham.
In similar sentiment, Wael Makarem, head of financial markets strategy at Exness, explained that Trump’s presidency is expected to strengthen the dirham due to the broader fiscal policies and interest rate dynamics that could drive further strength in the U.S. dollar. In this scenario, the dirham is positioned to benefit as a dollar-pegged currency, particularly against both developed and emerging market currencies, such as the euro and the Japanese yen.
UAE Markets Poised for Growth
Equity markets in the UAE also reflected a positive response to Trump’s win. On November 6, both the Dubai Financial Market and the Abu Dhabi Securities Exchange rose by over 0.4%. Analysts predict that the UAE’s equity markets will continue to thrive under Trump’s presidency, with many investors seeing a strong continuation of business ties between the U.S. and the UAE.
“Initial market reactions to Trump’s victory appear positive for UAE equities,” said Makarem, citing the strong economic fundamentals of the region. Trump’s previous term was marked by robust UAE-U.S. relations, particularly in terms of trade and regional stability. Given this, investors in the UAE seem optimistic about the potential continuation of favorable business dynamics under a second Trump term.
Impact on Trade and Investment
Experts also foresee that the UAE could continue to benefit from its relationship with the U.S. under Trump’s leadership, especially in terms of trade and investment. The UAE’s political stability and its flexible foreign policy have positioned it as a business-friendly environment, which analysts believe will remain attractive to international investors, even amid global uncertainty. Vijay Valecha, chief investment officer at Century Financial, emphasized that Trump’s “America First” stance may lead to trade wars with countries like China, but this would likely have little impact on the UAE market, given the country’s solid economic structure.
“Despite the global uncertainties that may arise from Trump’s potential foreign policy shifts, the UAE has always maintained a resilient and investor-friendly environment. The UAE’s diversification and long-standing beneficial relations with the U.S. position it well for growth,” said Valecha.
Additionally, the anticipated inflationary pressures in the U.S. could result in higher interest rates, which would benefit UAE banks and their financial sector. The inflow of foreign investment, particularly from the U.S., is also expected to increase, providing a boost to the UAE’s economy.
A Cautious Outlook
However, despite the general optimism, some experts, like Pavel, caution that investors should await concrete policy announcements before making significant moves. While Trump’s past presidency was generally favorable for Gulf nations, shifting global conditions and potential trade tensions could create volatility in the short term.
“In the long run, the UAE’s diversified economy offers a buffer, but the uncertainty around global trade dynamics demands a more cautious approach from investors,” said Pavel.
Conclusion
Trump’s return to the White House is expected to bring about a period of dollar strength, which will likely boost the UAE dirham in the near term. Additionally, UAE equity markets are set to benefit from renewed optimism in U.S.-UAE trade relations and a stable investment climate. However, as with all political transitions, the ultimate impact will depend on the specifics of Trump’s policies and their long-term effects on global markets. For now, the UAE dirham stands to gain alongside the dollar, offering a promising outlook for the region’s financial markets.
