With Donald Trump’s victory in the 2024 US presidential election, financial analysts are forecasting a positive outlook for the US dollar, global equity markets, and the UAE dirham. The UAE dirham, which is pegged to the US dollar, is expected to strengthen as the dollar surges, benefiting from Trump’s economic policies, particularly his fiscal approach, trade strategies, and potential interest rate dynamics.
The Dollar’s Surge and Its Effect on the UAE Dirham
Following Trump’s win, the US dollar has surged by nearly 2%, reaching a four-month high and posting its largest one-day jump since 2020. As a direct consequence, the UAE dirham, being tied to the dollar, has also gained strength against key global currencies such as the euro, Japanese yen, Indian rupee, and the Mexican peso.
George Pavel, general manager at Naga.com Middle East, suggests that the surge in the dollar will bolster the dirham, especially against emerging market currencies. Trump’s return to the presidency is expected to influence the dollar’s strength, largely driven by the potential fiscal policies and trade strategies that will emerge from his administration.
Vijay Valecha, chief investment officer at Century Financial, further predicts that the dirham will continue to strengthen in tandem with the dollar, especially with the fiscal and monetary policies Trump is likely to implement. His proposed tax cuts, increased government spending, and potential changes to trade deals could support the US dollar and, by extension, the UAE dirham.
Equity Markets React Positively
In the immediate aftermath of Trump’s win, equity markets in the UAE mirrored the positive performance of US stock markets. The Dubai Financial Market and Abu Dhabi Securities Exchange both saw a rise of over 0.4%, in line with the bullish sentiment observed in global equity markets.
Wael Makarem, a financial markets strategist at Exness, points out that market reactions indicate optimism for UAE equities under Trump’s presidency. His previous term was marked by favorable UAE-US relations, and there is an expectation that business ties between the two nations will continue to thrive in a second Trump term.
Although some analysts caution that global trade tensions and geopolitical uncertainties could arise, particularly with Trump’s “America First” stance, the UAE remains insulated due to its strong economic fundamentals. The UAE’s business-friendly environment and diversified economy offer a buffer against potential global disruptions.
Boost in UAE-US Trade Relations
The strong economic ties between the UAE and the US are expected to continue under Trump’s leadership. His previous term saw substantial growth in bilateral trade, defense cooperation, and business deals. Analysts such as Makarem suggest that Trump’s return could further strengthen UAE-US relations, particularly in areas of trade, investment, and defense.
Additionally, Trump’s policy could have a direct positive impact on the UAE stock market, with increased inflows expected from the strengthened US dollar and the revival of inflationary pressures. This could lead to higher interest rates in both the US and the UAE, which would benefit the UAE’s banking sector.
A Cautious But Optimistic Outlook
While the financial outlook is largely positive, analysts, including George Pavel and Wael Makarem, urge caution. Global conditions, including shifting trade dynamics and regional security, could still pose risks. Therefore, investors are advised to wait for specific policy announcements from Trump’s administration before making any major investment decisions.
The UAE’s diversified economy, however, provides a cushion for potential volatility. With robust fundamentals and a relatively stable political and economic environment, the UAE is well-positioned to weather any external challenges while continuing to benefit from its strong trade relationship with the US.
Conclusion
As Trump steps back into the White House, both the dollar and the UAE dirham stand to benefit from his economic policies, particularly his fiscal and trade strategies. The immediate market reactions signal a favorable environment for both equities and currencies, with the UAE poised to see continued growth in its trade relations with the US. Investors and analysts will be keeping a close eye on the developments of the coming months as the true impact of Trump’s second presidency unfolds.
