Market Headlines

AED - UAE Dirham

Sterling dodges most of the bullets
- Unexpected support from the Bank of England
- US payrolls surprise on the upside

The UAE authorities announced last month that the Dirham's peg to the US Dollar would remain in place. The decision has not stopped calls for a change to the status quo. The government's position seems clear; there will be no revaluation. Nevertheless, UAE businessmen and economists have not toned down their demands for a more realistic value for the currency. As long as the authorities stick to their guns the Dirham should continue to track the Dollar as precisely as it has for 20 years until the long-awaited single Gulf currency comes into being - perhaps - in 2010.

A yo-yo week saw Sterling undulating between Dh 7.33 and Dh 7.21. Three times it peaked above Dh 7.31 only to fall back by seven or more fils. By the time London opened this morning it was on another down-wave at Dh 7.23, four fils adrift on the week.

House prices could easily have torpedoed Sterling but, unusually, they failed to do so. Hometrack and Halifax started and ended the week with a similar story. Prices are down by 1 per cent over the last 12 months. For some reason investors seem to have become more relaxed about UK residential property market. The only obvious reason is that price falls in Britain are less pronounced than in the States. There can surely be no relaxation about the way the supply of mortgage finance has dried up. The latest monthly figures show the fewest monthly mortgage approvals since they started keeping track of such things nine years ago.

There were more downward pointers from the CBI's survey of retail firms and from GfK's index of consumer confidence. Both were down; the CBI Distributive Trades was the weakest for three years and GfK produced its lowest reading since 1992. David Balnchflower, MPC member and famous monetary "dove" (although he refutes that description) said the MPC should be more aggressive in cutting interest rates. Coming from a different speaker it might have had a negative impact on Sterling. Such is Mr Blanchflower's reputation that the element of surprise was missing and Sterling avoided what could have been another rough patch.

Sterling's best support came, unusually, from the Bank of England itself. After more than six months of unremitting pessimism from the Bank of England Wednesday's Financial Stability Review put an unexpectedly positive spin on the economic situation. Among other things the Bank believes "estimates of losses based on market values are likely to overstate ultimate losses" and "conditions are likely to improve as confidence and risk appetite recover..."

In the States investors looked favourably on a five year low for consumer confidence. After all, the University of Michigan had reported a 25 year low the previous week. The market was similarly dismissive of another fall in the S&P/Case-Shiller index of metropolitan house prices. It was down by nearly 13 per cent from a year earlier and the biggest decline in the - admittedly brief - history of the index.

Another nasty was the Conference Board's consumer confidence index which fell for a fourth consecutive month, this time to 62.3, a five year low. Perhaps investors had become blasé after the earlier 25 year low for consumer confidence from the University of Michigan. Whatever, the Federal Reserve's decision to cut another 25 basis points from its benchmark Federal Funds Rate caused only a brief downturn for the Dollar. Although it fell in with most analysts' expectations it was a disappointment to many who had hoped for no cut at all.

Friday's Non-farm payrolls completed a positive week for the Dollar when a loss of just 20k jobs was reported. Economists had been looking for a 75k - 80k fall. It was negative but not as negative as the number for which investors had prepared themselves.

Sterling has been exploring a $1.96 - $2.00 range for more than a month. If the Euro starts to come under fire both could reap the benefit in bilateral exchange rates. Even so, there is nothing to suggest that Sterling will move one way or the other against the Dollar in the near term. Buyers of the Dirham should cover half their requirement with a forward purchase and stay alert to take advantage of a better price for the balance, should one present itself. Although the idea of a Dirham revaluation has been officially rejected it still makes sense to hold Dirhams rather than Dollars if the opportunity exists: whatever else might not happen, there is no way the Dirham will be devalued.

For more information and expert guidance on the currency markets, call Moneycorp today on +44 (0)20 7589 3000. Alternatively go to www.moneycorp.com where you can open a free, no obligation Trading Facility.

Make your money go further!

Get the best Dirham rate of exchange

Recommend to a friend