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Will UAE dirham strengthen against global currencies after Trump win?

Analysts says Donald Trump's return as US President bodes well for equities, dollar

Published: Wed 6 Nov 2024, 6:28 PM

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Photo: AFP file

Photo: AFP file

Donald Trump's win in the US presidential election bodes well for the dollar and the UAE dirham which is pegged to the US currency as well local equity markets.

On Wednesday, greenback soared nearly two per cent to hit four-month high and was set for biggest one-day jump since 2020. As a result, the UAE dirham also made significant gains against the major currencies such as euro, Japanese yen, Mexican peso, Indian rupee, and the Philippines peso among other emerging market currencies.

Republican candidate Trump defeated his Democratic rival, Vice President Kamala Harris, on Wednesday in what in what polls had suggested would be a very tight election.

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George Pavel, general manager at Naga.com Middle East, said Trump's return to presidency indicates potential dirham strength, particularly against emerging market currencies as Emirati currency is pegged to the dollar.

“The dollar's recent surge amid political developments has already benefited dollar-pegged currencies like the UAE dirham. While initial market reactions show some currency volatility, the dirham is expected to follow the dollar's movements closely. The key factors to watch will be Trump's trade policies and their impact on global currency markets, as these could influence the relative strength of the dirham against major trading partners' currencies,” said Pavel.

Many currencies such as Indian rupee, Mexican Peso, Japanese yen and Philippines’ peso and others dipped against the US dollar and UAE dirham after the announcement of Trump’s victory.

Wael Makarem, financial markets strategists lead at Exness, explained that Trump's presidency is likely to strengthen dirham against major currencies like the euro and emerging market currencies.

“The dollar's surge following Trump's victory signals this trend. His proposed fiscal policies and potential interest rate dynamics could further support dollar strength, automatically boosting the dirham's position.”

Vijay Valecha, chief investment officer, Century Financial, also foresees dirham strengthening in tandem with the greenback.

“What we have seen so far is broad dollar strength across the board against most global currencies, with the hardest hit being the Mexican peso, Japanese yen and the euro. Other majors such as the Swiss franc and British pound also down over 1 per cent as an initial reaction. This has led to the dollar global index reaching a 2024 high. However, it remains to be seen whether this trend continues going forward beyond the immediate election reaction,” said Damian Hitchen, CEO of Mena and Asia-Pacific, Saxo Bank, said.

A staff member of the foreign exchange trading company Gaitame.com stands next to monitors displaying the Japanese yen exchange rate against the U.S. dollar at its dealing room in Tokyo, Japan November 6, 2024. Photo: Reuters

A staff member of the foreign exchange trading company Gaitame.com stands next to monitors displaying the Japanese yen exchange rate against the U.S. dollar at its dealing room in Tokyo, Japan November 6, 2024. Photo: Reuters

Equity markets

The UAE stock markets also gained on Wednesday in line with the US stock markets with both Dubai Financial Market and Abu Dhabi Securities rising over 0.4 per cent.

“Initial market reactions to Trump's victory appear positive for UAE equities. The Dubai and Abu Dhabi bourses have maintained their steady performance, supported by the region's strong economic fundamentals. Trump's previous presidency coincided with robust UAE-US economic relations, and market sentiment suggests investors anticipate a continuation of favourable business ties between the two nations under a potential second Trump term,” said Wael Makarem.

Hitchen said global equity markets have had a mixed response to the US election thus far. Globally, Trump is seen as a positive for equity markets, and with his “America first” mantra, this applies most to US equities.

Echoing his peers, George Pavel also predicted UAE investors view Trump's victory optimistically, given his previous supportive approach to Gulf allies and de-escalation policy in the region.

“Trump's administration's past policies were generally favourable for regional stability and business interests. However, some local investors may exercise caution initially, waiting to see his specific policy directions toward the Middle East before making major portfolio adjustments while focusing more on the fundamentals of the market,” he said.

UAE-US Trade boost

Vijay Valecha of Century Financial sees UAE equity markets continuing to perform well under the Trump administration.

“Trump’s ‘America First’ stance could manifest in the form of an isolationist foreign policy and potentially trigger trade wars with countries like China. However, this is unlikely to have an adverse impact on the UAE markets and economy. The UAE is a bastion of safety for investors as it has honed a politically sound, business-friendly environment that is relatively immune to global uncertainty,” he said.

“Furthermore, the US and the UAE have always nurtured a long-standing mutually beneficial relationship based on trade and business. A flexible foreign policy has also equipped the UAE to accommodate any changes in US leadership with ease. Moreover, long-term fundamentals appear strong, and new listings have attracted both local and foreign investors to the UAE markets. Although Trump is advocating for a weaker dollar, his policies have the potential to revive inflationary pressures, and therefore strengthen the dollar. A stronger dollar would attract more inflows to the UAE – thereby boosting the markets. Furthermore, if inflationary pressures begin mounting, then interest rates in the US and the UAE could remain elevated for longer. This would boost the net interest income of UAE banks and benefit the financial sector,” he said.

George Pavel said Trump's victory could bring opportunities but caution is warranted. “His previous term showed positive engagement with the Gulf, but global conditions have changed significantly. Investors should wait for concrete policy announcements before making major moves, particularly regarding trade and regional security. The UAE's economic diversification provides some buffer, but uncertainty around global trade tensions demands a more measured approach,” he said.

Makarem of Exness said Trump's return signals a potentially strong upside for UAE-US relations, particularly in trade and investment. “Based on his previous presidency's track record, positive momentum in bilateral business deals and defence cooperation could be expected. The UAE markets should benefit from this familiar landscape, especially given Trump's demonstrated understanding of Gulf dynamics and preference for stable regional relations.”

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