Investors seek safety in forex markets

Investors in the UAE are piling into foreign exchange as low volumes and moribund prices steer them away from trading in shares. Middle East forex trading volume at Standard Chartered, which has a big presence in the region, has increased by as much as 400 per cent in the past two years. And Standard Chartered says it is not alone. Banks such as HSBC of the UK, BNP Paribas of France and National Bank of Abu Dhabi are enjoying a sizeable increase in forex business in the UAE.

"Increased currency volatility means that clients do not have the luxury to sit on the side and hope for the best," said Nafees Akbarali, the regional head of fixed income, currency and commodities trading at Standard Chartered in Dubai. Volatility in forex markets increased this year for several reasons, including concerns about sovereign debt in the euro zone, less-than-optimistic growth forecasts in some regions of the world and, most recently, a steady stream of negative economic data from the US, Mr Akbarali said.

Spot rates of the dollar against the euro hit a high of US$1.43 in January and the greenback was trading at $1.27 on Friday. The dollar hit $1.61 against the British pound in January and was trading at $1.55 on Friday. Currency traders see such market volatility as favourable because see-sawing prices create money-making opportunities. Despite falling from its January highs against the euro and sterling, the dollar - to which the dirham is pegged - remains a favourite currency for traders in the region.

The dollar rallied on Friday to a six-week high against the euro as US investors piled into safe assets because of growing concern over the chances of a double-dip recession. "Investor caution ramped up sharply over the past couple of days, providing some safe-haven support for the US currency," Nick Bennenbroek, the head of currency strategy at Wells Fargo in New York, told Dow Jones. [e-mail]