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UK pound set to gain further against UAE dirham after hitting a one-year high

Several investors and traders are also expecting an increase in interest rates in order to contain inflation, supporting Sterling against foreign currencies

The British pound, which hit a one-year high against the UAE dirham and the US dollar this week, is set to gain further as the European economy performs better and the Bank of England is set to increase interest rates further.

Money transfer companies in the UAE reported a mixed trend in terms of remittances to the UK.

The UAE currency is pegged to the dollar, therefore, the dirham follows the greenback’s movement. The UAE is also home to a large number of British nationals while UK citizens are one of the top investors in the UAE economy, especially in Dubai’s real estate.

The UK currency gained to 4.65 against the UAE dirham on Monday, which was hit in the first week of May 2022 last time, ahead of the interest rate decision by the British central bank.

“Pound is one of the best-performing currencies this year. In January 2023, the pound/dollar was trading at 1.1965 (4.3945 against the dirham) as against 1.2653 (4.6475 versus the UAE dirham) in May. There is a six per cent appreciation in British Sterling in five months, said Rajiv Raipancholia, CEO and managing director of Orient Exchange.

“The British economy is doing better than expected and there is an indication that rate hikes would be maintained by the central bank which can further boost the pound as foreign investors would be attracted for better returns. At this trend, we can look at pound/dollar 1.30 (4.775 against dirham) this year. This continuous appreciation is also due to investors being more confident in the UK banking sector,” added Raipancholia.

A LuLu Exchange spokesperson said the market expects the Bank of England to continue to raise interest rates at its meeting on Thursday due to persistently high inflation, which is currently running at just over 10 per cent.

“A jump in consumer spending has prompted speculation that the central bank will raise interest rates by another 25 bps to 4.5 per cent this week.

“Interest rates are expected to peak near five per cent later this year, and this may further strengthen the pound during the second half of the year. For the rest of the year, the pound is expected to trade in a range of 4.15 to 4.85 against UAE dirham,” said the spokesperson.

Moreover, the US Federal Reserve’s interest rate outlook and political stability in the UK will also dictate pound movements in the second half, LuLu Exchange said.

Al Fardan Exchange said the sterling has already experienced highs and lows from the strong start this month against the dirham.

“The next important influence will be the outcome of the Bank of England meeting on May 11 to decide what interest rates should be set at,” Al Fardan Exchange said, adding that confidence and sentiment reports are very crucial for the coming year as many traders have lost the confidence due to high energy prices, Brexit, wage growth, and of course the war in Ukraine.

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