The US dollar will decline further against major currencies, especially euro, in the next few days, which means a drop in the value of the dirham, said analysts.

The analysts told Emirates Business that the fall will have both negative and positive impact on the UAE's economy.

Al Fajer Securities economic consultant Dr Humam Al Shamma said the dollar will fall further against major currencies, attributing the decline to the trillions of dollar pumped into the US economy to contain the global financial crisis and which in turn has led to a rise in dollar supply.

"I expect the rate of exchange of the dollar to reach €1.6 from the current €1.5."

He expects the fall in the dollar to have a positive impact on the UAE economy.

He said the fall will push up the price of oil, the strategic commodity of the UAE.

He said investors and speculators worldwide are moving away from the dollar because of its falling rate and are instead opting for commodities such as oil and gold on the assumption that both are safe bets. Al Shamma said the fall in the dollar creates discrepancy in the price of oil among major countries so oil would be cheaper for countries that deal in euro.

He said with the fall in the dollar, shares become cheap, which pushes foreign investors to buy more.

Also the fall in the dollar boosts UAE exports, which become cheap.

He also sees a negative impact on the UAE economy.

The decline in the value of the dollar leads to the fall of dirham and foreign assets as well as oil revenues.

The value of imports in other currencies, such as euro, pound sterling and yen, goes up.

Over the past seven months, the rate of exchange of the dollar against the euro went down by 20 per cent, which means the loss of some 20 per cent in the value of the dirham.

Therefore, the value of commodities imported by the UAE from Europe and Japan has risen by 20 per cent. And if some 30 per cent of UAE imports come from Europe and Japan, this means that prices of 30 per cent of the imported commodities have gone up by 20 per cent. Therefore, the rate of inflation resulting from the imported inflation is up, and these are big negative aspects. The UAE economy is strong and it is not right to link it to the US economy. said Al Shamma.

Dr Mohammed Al Assoumi, a Dubai-based analyst, said the International Monetary Fund along with other organisations believe that now is the best time to depeg from the dollar in the Gulf Co-operation Council. All indicators show that the dollar continues to fall.

"However, I think the depegging is difficult since the oil is priced in dollar."

Al Assoumi said the dollar will fall further during the coming period and this retreat is a reflection of the difficult status of the US economy. "Undoubtedly this retreat will impact us especially in the return of the phenomenon of imported inflation and the rise in the rate of inflation in the country after its fall because of the global financial crisis.

"And consequently the purchasing power of the dirham will go down."

Meanwhile, Director-General of Al Fardan Exchange Osama Al Rahma said talk of a rise in the value of the dollar in coming days is not correct and is not based on logic. He said the continuation in the fall of the dollar is attributed to the drop in the rate by the Federal Reserve. Also US official insists that they will not increase the rate on the dollar, a thing that prompted big investors and speculators to sell big amounts of the dollar and buy other currencies or gold.

The US believes that the drop in healthy for its exit from the global crisis since this drop will lead to an increase in UAE exports and consequently factories will go back to work.

Al Rahma said the dollar has largely deteriorated against major currencies since the beginning of the year. It went down by 7.05 per cent against the euro, some 12.9 per cent against the pound sterling, some 30.16 per cent against the Australian dollar and 0.81 per cent against the yen.

The dirham retreated against the euro by more than 6.7 per cent, the pound sterling by more than 9.18 per cent and the yen by about 1.35 per cent. He said the last few months have seen a big fall in remittances in euro and pound sterling, while the remittances related to Indian, Pakistani and Filipino nationalities rose due to the fall of dollar against the currencies of these nationalities, especially the fall of the dollar against Indian rupee.

In the beginning of the year, each dollar was equal to Rs48.58, while each dollar is equal to Rs46.72 now. As a result of that, exchange firms opened have many branches.

One of these companies is Al Fardan Exchange, which opened eight new branches to meet the growing demand. Al Rahma said insisting on the dirham's peg to the dollar is not needed as the dirham is strong due to the strength of UAE economy.

But this strength is not reflected on the dirham's exchange rate due to its peg to the dollar.

He said: "We wish there was more independence, especially as the UAE Central Bank did not follow the decisions of reduction related to the dollar taken by the Federal Reserve. The UAE Central Bank did not reduce the interest rate on the dollar according to the Federal Reserve's reductions.

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