Pound to Dirham Rate Outlook: Trending in Favour of AED Buyers

Above: GBP/AED at one-day intervals with 50- and 200-day moving averages.

The Pound to Dirham exchange rate (GBP/AED) has been trending higher, with technical studies suggesting that further upside can be expected over the next three months.

This is good news for AED buyers as it suggests a boost in purchasing power.

However, the Dirham is linked to the U.S. Dollar, and as such, analysts are watching the USD for guidance.

Historically, the USD tends to weaken on a seasonal basis in April, which helps to explain the near-term AED weakness.

However, the more fundamental reason for the USD weakness is the expectation for Federal Reserve rate cuts later in 2023.

Economists, and the Fed itself, expect the U.S. economy to enter a recession due to higher interest rates and recent banking failures.

This should prompt Fed rate cuts in H2 2023, which would drag on the USD and also weigh on AED.

Therefore, AED buyers could see patience rewarded as the uptrend plays out.

It is unclear what could prompt a rebound in the AED's fortunes, but it is most likely that we would need to see stock markets fall drastically. However, predicting such "black swan" events is notoriously difficult.

AED sellers should be nimble in this environment, as currencies never move in straight lines. Relief rallies in AED (GBP/AED pullbacks) can be expected as markets never move in straight lines, but they should ultimately prove to be shallow.

Despite the challenges facing the AED, it is worth noting that the UAE's economy has remained relatively strong in recent years.

This can be attributed in part to the country's efforts to diversify its economy away from oil and gas, as well as its focus on developing industries such as tourism and technology.

Additionally, the UAE has attracted significant foreign investment in recent years, which has helped to drive economic growth.