Donald Trump's victory in the US presidential election is expected to benefit the dollar and the UAE dirham, which is pegged to the US currency, as well as local equity markets. On Wednesday, the greenback surged nearly two per cent, reaching a four-month high and marking its biggest one-day jump since 2020. Consequently, the UAE dirham also saw significant gains against major currencies such as the euro, Japanese yen, Mexican peso, Indian rupee, and the Philippines peso, among others.
Republican candidate Trump defeated his Democratic rival, Vice President Kamala Harris, on Wednesday in an election that polls had predicted would be very close. George Pavel, general manager at Naga.com Middle East, noted that Trump's return to the presidency could strengthen the dirham, especially against emerging market currencies, given that the Emirati currency is pegged to the dollar.
"The recent surge in the dollar due to political developments has already benefited dollar-pegged currencies like the UAE dirham. While initial market reactions indicate some currency volatility, the dirham is expected to closely follow the dollar's movements. Key factors to watch include Trump's trade policies and their impact on global currency markets, which could influence the dirham's strength against major trading partners' currencies," said Pavel.
Several currencies, including the Indian rupee, Mexican Peso, Japanese yen, and the Philippines’ peso, weakened against the US dollar and the UAE dirham following Trump's victory announcement. Wael Makarem, financial markets strategists lead at Exness, explained that Trump's presidency is likely to strengthen the dirham against major currencies like the euro and emerging market currencies.
"The dollar's surge following Trump's victory indicates this trend. His proposed fiscal policies and potential interest rate dynamics could further support dollar strength, automatically boosting the dirham's position," Makarem said.
Vijay Valecha, chief investment officer at Century Financial, also anticipates the dirham strengthening in tandem with the greenback. "What we've seen so far is broad dollar strength across the board against most global currencies, with the hardest hit being the Mexican peso, Japanese yen, and the euro. Other majors such as the Swiss franc and British pound also down over 1 per cent as an initial reaction. This has led to the dollar global index reaching a 2024 high. However, it remains to be seen whether this trend continues beyond the immediate election reaction," said Damian Hitchen, CEO of Mena and Asia-Pacific at Saxo Bank.
The UAE stock markets also gained on Wednesday, mirroring the US stock markets, with both the Dubai Financial Market and Abu Dhabi Securities rising over 0.4 per cent. "Initial market reactions to Trump's victory appear positive for UAE equities. The Dubai and Abu Dhabi bourses have maintained their steady performance, supported by the region's strong economic fundamentals. Trump's previous presidency coincided with robust UAE-US economic relations, and market sentiment suggests investors anticipate a continuation of favourable business ties between the two nations under a potential second Trump term," said Wael Makarem.
Hitchen noted that global equity markets have had a mixed response to the US election thus far. Globally, Trump is seen as a positive for equity markets, and with his “America first” mantra, this applies most to US equities. Echoing his peers, George Pavel also predicted that UAE investors view Trump's victory optimistically, given his previous supportive approach to Gulf allies and de-escalation policy in the region.
"Trump's administration's past policies were generally favourable for regional stability and business interests. However, some local investors may exercise caution initially, waiting to see his specific policy directions toward the Middle East before making major portfolio adjustments while focusing more on the fundamentals of the market," he said.
Vijay Valecha of Century Financial sees UAE equity markets continuing to perform well under the Trump administration. "Trump’s ‘America First’ stance could manifest in the form of an isolationist foreign policy and potentially trigger trade wars with countries like China. However, this is unlikely to have an adverse impact on the UAE markets and economy. The UAE is a bastion of safety for investors as it has honed a politically sound, business-friendly environment that is relatively immune to global uncertainty," he said.
"Furthermore, the US and the UAE have always nurtured a long-standing mutually beneficial relationship based on trade and business. A flexible foreign policy has also equipped the UAE to accommodate any changes in US leadership with ease. Moreover, long-term fundamentals appear strong, and new listings have attracted both local and foreign investors to the UAE markets. Although Trump is advocating for a weaker dollar, his policies have the potential to revive inflationary pressures, and therefore strengthen the dollar. A stronger dollar would attract more inflows to the UAE – thereby boosting the markets. Furthermore, if inflationary pressures begin mounting, then interest rates in the US and the UAE could remain elevated for longer. This would boost the net interest income of UAE banks and benefit the financial sector," he said.
George Pavel said Trump's victory could bring opportunities but caution is warranted. "His previous term showed positive engagement with the Gulf, but global conditions have changed significantly. Investors should wait for concrete policy announcements before making major moves, particularly regarding trade and regional security. The UAE's economic diversification provides some buffer, but uncertainty around global trade tensions demands a more measured approach," he said.
Makarem of Exness said Trump's return signals a potentially strong upside for UAE-US relations, particularly in trade and investment. "Based on his previous presidency's track record, positive momentum in bilateral business deals and defence cooperation could be expected. The UAE markets should benefit from this familiar landscape, especially given Trump's demonstrated understanding of Gulf dynamics and preference for stable regional relations," he said.
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