21 Feb Effect of the US Presidency on the Dollar
The newly-elected US president, has been vocal about his concerns of the soaring strength of the US dollar and has warned that a strong greenback could be disadvantageous for American companies that do business abroad.
Analysts predict that since the President is extremely pro-business and would like to boost America’s manufacturing and export sectors. Hence, a weaker dollar would make US manufacturers more competitive. If foreigners cannot afford to buy products and services exported from America, it could derail the President’s plans to revive US manufacturing.
Further, a weaker dollar relative to the yen or euro, for example, makes goods imported from those countries relatively more expensive and may thereby encourage consumers to buy domestically, narrowing the trade deficit theoretically, as exports may be cheaper to those buying outside the country.
The President’s public comment and support for a weaker dollar is unprecedented as American presidents have usually refrained from talking about the currency, preferring to leave such commentary to the Treasury department, who normally stick to the politically correct comment, “the United States supports a strong dollar.”
Experts say that it may be hard to imagine that the American dollar can be kept in check for a prolonged period, given that Europe and Asia are attempting to revive their sluggish economies, while the Federal Reserve is on a path toward normalizing monetary policy, which should mean higher rates. In this scenario, the US dollar is only likely to become stronger. Moreover, given that over the last couple of years, the US economy has been on a relative basis stronger than other nations around the world, the dollar’s value has grown. While there is no doubt that a falling dollar will have ripple effects throughout the world, we await more clarity from the administration on economic policy.
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Effect on the UAE dirham
According to financial experts, this presidency may have ramifications for personal finance in the Gulf, in that UAE residents may see their dirhams decrease in value against other currencies and that in the medium term, it could affect UAE residents’ ability to secure credit. Analysts say that banks in the Middle East could respond to this news by tightening their credit approvals.
Impact on business
Experts have surmised that in the long term, the Middle East and Asia are likely to innovate with competitive business models and technology solutions with options other than the US technology components, as the presidency is likely to make the US technology expensive to fund the job creation cost in the States.
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