A weaker US dollar is expected to affect the purchasing power of people in Gulf countries, including the UAE, making activities such as sending remittances and travelling more expensive, analysts say.
The US currency dropped to a four-year low this week and is heading for its worst month since June. The dollar index, which tracks the US currency against six peers, was marginally higher – up 0.37 per cent on Friday after reports that US President Donald Trump is preparing to nominate Kevin Warsh as Federal Reserve chair. But it is down 1 per cent for the week.
"The recent weakening of the US dollar is beginning to have a tangible impact on consumer spending and purchasing power across the Gulf, particularly because most GCC currencies remain pegged to the dollar," says Hamza Dweik, head of trading for the Mena region at Saxo Bank.
"While the dollar peg continues to provide domestic monetary stability, it also means that Gulf consumers feel the effects of dollar weakness through reduced international purchasing power rather than through sharp movements in local exchange rates."
The currencies of five of the six countries in the Gulf Co-operation Council are pegged to the greenback, with Kuwait's dinar the only exception, so fluctuations in the dollar
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