Dubai Cautions over US dollar

Dubai is apprehensive about the consequences the strengthening of the US Dollar will have on its economy. According to DubaiEconomic Council (DEC) a strengthening US Dollar will negatively influence loans, exports and debts. Due to Dubai being a diversified economy, it will be influenced more by the US dollar than plunging oil prices. The DEC is directly involved in the economic decision procedures of Dubai’s government.

Attention was initially focused on the international drop of oil prices, which fell more than 50% since June 2014.

Last Wednesday, the US Dollar Index traded at 92.7640. The highest it has traded recently is 93.046. Just before oil prices began to decrease during last may, the US Dollar Index was traded at the low index of 79.5.

if the value of US Dollar soars, Dubai’s cost of servicing debt will also simultaneously increase. This will also affect other areas of Dubai’s economy. For instance, the demand for UAE manufactures goods and US re-exports may drop due to the fact their price will rise, therefore will be more expensive for non-US markets to purchase. Plunging oil prices will also influence exports since oil-based economies such as Saudi Arabia, Qatar, Oman and Iran’s income will plunge, which are the UAE’s major export partners.

What ’s more, due to the higher interest rate of the US Dollar, cost of borrowing will also increase. The US economy is recovering and recoiling at a faster rate than was anticipated, marking an average groeth rate of 4.8% during the last two financial quarters. Its growth rate and overall economic performance is the strongest it has been during the last ten years. A recoiling US economy could possibly lead to an increase in interest rate conducted by the Federal Reserve. At present, the interest rate is marked at the low percentage of 0.25. in the occasion interest rate increases in the US, the UAE’s interest rate will most probably follow, which is anticipated will not significantly influence the latter because its rate is currently very low.

Although Dubai is cautious, its government does not believe the increase in US Dollar will threaten Dubai’s economy. Decreased oil prices will probably result in increased production levels, and the increased US Dollar will lead to a decline in costs concerning re-exports to non-US countries. Last Thursday, Global benchmark Brent Crude was sold at $48.41 per barrel. When compared to June 2014, the prices of oil more than halved, marking a 57.9% plunge.