Exchange houses in the United Arab Emirates reported a slight increase in remittances to Europe after the euro fell to its lowest level in 20 years and approached parity with the US dollar, offering European residents a window of opportunity to take advantage of favorable exchange rates and send money home. .
Al Fardan Exchange has started seeing an increase in remittances from European residents to the UAE since the start of the third quarter of 2022.
“The number of remittances to Europe has increased by almost 12% compared to previous months and we expect more activity in the coming days following the weakness of the euro,” said Hasan. Fardan Al Fardan, managing director of the exchange house.
There has been a slight increase in euro remittance volumes, a Lulu Exchange representative said on Tuesday. However, there could be an increase in remittances as some people are on hold, waiting for the currency to weaken further before sending more money.
Europe’s common currency is poised to drop below parity or peg the dollar amid fears an energy crisis could tip the region into recession. The US currency was boosted by expectations that the Federal Reserve will raise rates faster and further than its peers.
Skyrocketing energy costs in Europe are a major fear as Russia’s biggest natural gas pipeline to Germany, the Nord Stream 1, began annual maintenance on Monday, with flows set to stop during 10 days.
Investors fear the shutdown could be extended due to the war in Ukraine, further restricting European gas supplies and tipping the struggling eurozone economy into recession.
“Major currencies are depreciating against the US dollar. Additionally, geopolitical tensions and rising oil prices are making it difficult to return to normal economic conditions,” a representative for Lulu said.
The euro was at $1.0023, down 0.17%, at 2:57 p.m. Tuesday. The last time the euro was below $1 was July 15, 2002.
“The weakness stems from the economic outlook, which is compounded by the central bank being forced to raise interest rates,” said Craig Erlam, senior market analyst for the UK, Europe, Middle East and Africa at forex broker Oanda.
“There is clearly a view that the economy is not strong enough to sustain higher rates on top of the energy crisis coming this winter, among other price pressures.”
A breakout of the peg looks very likely at this point and it’s hard to see a bullish case for the euro in the near term given the darkening economic outlook, Erlam said.
The dollar index, which tracks the currency against a basket of six peers with the most heavily weighted euro, hit 108.5, the highest since October 2002.
The US currency gained on expectations that the Fed will continue to aggressively hike rates as it tackles soaring inflation.
Markets are closely watching U.S. consumer price data due on Wednesday, with economists polled by Reuters expecting the index to show an annual rate of 8.8% for June.
The Fed is expected to raise rates by 75 basis points at its July 26-27 meeting. Fed funds futures traders expect its benchmark rates to rise to 3.49% by March, from 1.58% currently.
The safe-haven US currency is also supported by concerns about growth elsewhere, with China in particular implementing strict zero-Covid policies to contain further outbreaks.
“The euro’s fall overnight also dragged the pound down,” said Jeffrey Halley, senior market analyst for Asia-Pacific at Oanda.
The pound fell 1.19% to 1.1890 against the greenback overnight, dragged lower by the euro and a creeping US dollar, according to Mr Halley.
With a new prime minister not expected to be announced until early September, that uncertainty will continue to weigh on sterling, he said.
“Risk sentiment indicators, the Australian and New Zealand dollars, were also swept up in the whirlwind of the euro, as investors loaded up on US dollars and a few US government bonds as U.S. yields fell overnight,” Halley said.
The euro-dollar currency pair “never looked back after breaking the multi-decade support line at 1.0850 earlier this year,” he said. “Somewhere around 0.9900 looks like the train’s next stop.”
The Philippine peso hit a nearly 17-year low on Tuesday, with most Asian emerging market currencies weakening further amid falling global risk appetite. The peso fell 0.5% to its lowest level since September 2005. The currency has lost almost 10% this year.
The Indian rupee slumped to a new all-time high against the dollar.
“The Indian rupee slipped 13 paisa to 79.58 against the dollar in early trading on Tuesday due to dollar strength and continued outflows of foreign funds and high crude prices. The projection is that the Indian rupee will rise will head towards 22 dirham levels,” Mr Al Fardan said.
“Similarly, most Asian currencies, including the Philippine peso and Thai baht, also fell against the strength of the US dollar. Since the majority of expats in the UAE are from Asia, attractive exchange rates triggered an increase in remittances to India and other Asian countries.”
Updated: July 12, 2022, 11:51 a.m.