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Why British sterling's fall won't pound UAE

posted on 26/06/2016: 2003 views



The pound sterling crashed to a more-than-30-year low on Friday following the news of Brexit, but it will benefit UAE importers and investors, industry analysts told Khaleej Times.

The pound sterling sank as low as US$1.35, a near 10 per cent drop in value and its lowest rate against the dollar since September 1985, before recovering to US$1.37. This fall was reportedly even larger than the drop during the 2008 global financial crisis.

"With the UK exiting the EU, most major currencies, in particular the pound sterling plummeted, as was evident from it being at its lowest in 30 years. We feel that the major damage has already been done and the slide would be limited for the next few days," Adeeb Ahamed, chief executive officer of Lulu International Exchange, told Khaleej Times.

"The movement in the Indian stock market was also quite volatile, at one point being down by more than 1,000 points. But, compared to other currencies, the Indian rupee had moved in a more narrower range," Ahamed added.

Sudhir Kumar Shetty, president of UAE Exchange, believes that the pound sterling as well as the euro will feel the pressure in coming days. Shetty said: "Sterling, which is trading around 1.32, might touch 1.25 by the close."

He mentioned that imports from the UK and Europe to the UAE and other parts of the Gulf region would be cheaper in the wake of a weaker pound sterling.

"A weaker pound sterling will also trigger inflation as cost of living will go up."

But he warned that a high inflation rate in the UK and Europe will result in less import and exporting countries will be affected."

British banks took a US$130 billion hit on Friday, with financial giants such as Barclays and Lloyds down 30 per cent. Last year, UAE-UK bilateral trade reached ?12 billion. The bilateral trade is expected to touch ?25 billion by 2020.

Danube Group chairman Rizwan Sajan said: "I believe imports from Europe and the UK will be a bit cheaper because of the currency depreciation but that will be a short-term and I feel this will stabilise soon."

India, China and US are the top three trading partners of the UAE. There is no significant trade with the UK.

Shan Saeed, chief economist at Malaysia-based IQI Holdings, said: The pound sterling could hit parity with US dollar by September to November 2016. Overall, this could lead to the UK going into a recession." – Emirates News Agency, WAM - http://www.wam.ae/en/news/economics/1395297133769.html

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