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Tuesday, July 01, 2025

Weaker US dollar dents purchasing power and discretionary spending in Gulf

By Vijay Valecha in 'Century in News'

Weaker US dollar dents purchasing power and...

Vijay Valecha, July 1, 2025, The National

A weaker US dollar is weighing on the purchasing power of people in the Gulf region, denting discretionary spending and reducing international remittances, but is supporting regional tourism inflows, according to industry experts.

On Tuesday, the dollar index fell 0.2 per cent at 11.56am UAE time to a more than three-year low, hitting its lowest level against the euro since September 2021.

The greenback, which is considered the world's reserve currency, has weakened by more than 10 per cent in the first half of this year, dragged down by US fiscal and trade policy direction.

The currencies of five countries in the six-member Gulf Co-operation Council are pegged to the greenback, with Kuwait's dinar being the only exception, and movements in the US dollar tend to have a direct impact on spending patterns in the region.

“A weaker US dollar carries significant implications for the Gulf region, where most currencies, such as the UAE dirham and Saudi riyal, are pegged to the US dollar,” Vijay Valecha, chief investment officer at Century Financial, says.

“This peg ensures currency stability, but it also means that movements in the USD directly influence the region’s external financial behaviour, particularly remittances, spending, and global investment flows.”

Uncertainty over President Donald Trump’s aggressive pursuit of hefty tariffs on global trading partners and his constant pressure on the US Federal Reserve to slash rate cuts have prompted investors to shun American assets, including the dollar. The greenback's first-half performance is the worst since 1973.

Spending

In the UAE and wider Gulf, a weaker greenback can influence both domestic and international spending behaviour, says Ben Bolger, a financial planner in Abu Dhabi and founder of Squirrel Education, a company that teaches schoolchildren financial independence.

Remittances

Mr Valecha of Century Financial says that in recent months, the currencies of several recipient countries have depreciated more sharply than the dirham.

For instance, the Indian rupee weakened to Dh23.5 per in June 2025, prompting a noticeable increase in remittance activity from Indian expatriates.

Looking ahead, if the dollar continues to soften while emerging market currencies remain under pressure, remittance behaviour could remain elevated, Mr Valecha adds.

Source:

The National

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