Hussam Abdulnabi (Dubai)
The arrival of the US dollar to the parity rate with the euro constitutes a good investment opportunity to purchase European assets at a lower cost and the lower cost of production inputs and imported goods from European countries, according to economic experts.
They demanded the necessity of realizing that the rise in the dollar exchange rate against the euro is not a product of the strength of the American economy, but rather came as a result of the increase in demand for the dollar due to the interest rate hikes and the directing of liquidity to American deposits, which means that the gradual rise of the US dollar against the euro may be followed by rapid declines later. The dollar exchange rate reached parity with the euro exchange rate, in global markets last Tuesday, for the first time in nearly 20 years. The European currency is receiving pressures due to fears of an economic recession in the eurozone, amid the ongoing energy crisis and expectations to raise interest rates by the European Central Bank (ECB) at its next meeting in July 2022, as the value of the euro has fallen since the beginning of this year by 12.19 percent compared to its prices. The beginning of the current year 2022.
a future vision
Jamal Saif Al-Jarwan, Secretary-General of the Emirates Council for Investors Abroad, stressed that the dollar’s reaching the parity rate with the euro constitutes an opportunity for the Emirati investor to buy European assets at a lower price, as the depreciation of the currency often favors the investor, but he stressed the need for such investments to be cautious. The future outlook for it should be medium to long-term, especially since the Russian-Ukrainian war has struck the European economy in the depths. It is expected that stability and economic growth will not return to the European continent before 3 years.
Al-Jarwan identified a number of conditions to successfully exploit the decline of the euro against the US dollar, the most important of which is anticipation of the results of the meeting that took place between the French president and heads of global sovereign funds and representatives of banks and international financial institutions last week in what was called the “Paris Summit”.
He added that this meeting shows that the leaders of European countries are trying to convey reassurances to the global sovereign funds regarding the future of European economies, especially since the future outlook on the old continent has become negative.
Al-Jarwan pointed out at the same time that the results of that European movement and the results of those meetings will be the decisive factor in making the investment decision, but without ignoring the fact that the current European crisis will eventually end and things will return to their rightful place if the repercussions of the Russian-Ukrainian war end, whether on prices Energy or industrial sector stability and the single European currency rate.
Repercussions vary
For his part, Dr. Ahmed bin Hassan Al-Sheikh, an economic expert, said that the repercussions of the US dollar reaching the parity rate with the euro vary according to the vision for that matter, and he explained that if we look at the decline of the euro against the dollar as the UAE is an importing country from European countries, this leads to The interest of the state due to the decline in the prices of raw materials and imported production inputs. On the other hand, if we look at the matter as the UAE is an exporting country, the decline of the euro against the dollar will have a negative impact through the increase in the cost of UAE exports to European countries.
He added that the same applies to the movement of investments. On the positive side, the decline of the euro against the dollar represents an opportunity to direct Emirati investments to European countries due to the decline in the value of European assets and due to the linkage of the Emirati dirham to the US dollar, noting that, on the other hand, the impact will be negative on the movement of incoming European investments. To the state as a result of the fact that the value of investments in euros will decrease when converted into UAE dirhams.
Regarding the advice that the investor should follow in his expectations for the price of the US dollar during the coming period, Sheikh said that it is necessary to realize that the strength of the US dollar at the present time is not the result of the strength of the US economy, which is still suffering from internal problems, but rather as a result of the US Federal Reserve’s decisions to raise the price of the dollar. Interest is to curb inflation with almost certain probabilities of further hikes.
He continued: The rise in the US interest rate and the emergence of reports that expect the total increase to reach 350 basis points until the end of this year, increased the demand for the US dollar in order to benefit from investing in US deposits of attractive returns, noting that the second element behind the rise of the dollar against the euro was represented in The Russian-Ukrainian war, which led to a state of political and economic instability in the eurozone in general, and consequently the single European currency fell against the US dollar at a greater rate than the decline of other international currencies against the US dollar.
Al-Sheikh pointed out that the expectations in general are that the dollar will continue to rise against the euro until the first quarter of next year at least, warning that investing in the US dollar may be a good investment in the short term, and it should be noted that the US dollar’s rise is gradual against The euro may be followed by rapid declines, which requires caution and attention to global market indicators in order to avoid losses if the dollar begins to decline.
investment trends
In turn, Tariq Qaqish, CEO of Salt Fund Financial Consulting, stated that the trends of local investors will be dependent on two main factors: the strength of the US dollar against the euro, and the increase in US interest rates, as the current investment trends aim to benefit from the high interest rate on deposits. Banking in the United States and expected continued rises during the coming period.
He said that although the strength of the US dollar, and thus the dirham associated with it, may have a negative impact (in theory) on European investments in the real estate sector in the country, the high rate of return on real estate investment in the country maintains the attractiveness of the real estate sector, especially as it It exceeds the interest rates on bank deposits, which makes the real estate sector maintain its position among the most important sectors that attract investments.
Investing in real estate
Tariq Qaqish said that the decline of the euro against the dollar may constitute an opportunity to invest in real estate in a number of European countries, but the majority of Emirati investors prefer to invest within the country due to the political and economic stability, which makes the demand always present in the real estate sector, especially in Abu Dhabi and Dubai.