No question, 2022 was the year of the dollar. While almost every other global asset class fell, the greenback stood proud.
Forget the Swiss franc, Japanese yen, gold and Bitcoin. The US dollar is firmly established as the world’s number one financial safe haven.
But currency performance is cyclical and many traders feel the dollar is now overvalued and could slide in 2023.
So which currencies will fight back in 2023? The euro? The Aussie dollar? The Indian rupee? Or maybe even the beleaguered British pound?
US dollar
No currency is an island. They rise and fall relative to each other, and this year almost every currency has been falling against the US dollar.
The greenback is up more than 14 per cent against the Japanese yen in 2022 and 12 per cent against the pound. It has also climbed more than 7 per cent against the euro, Australian, Canadian and New Zealand dollars.
The dollar has also been boosted by a hawkish US Federal Reserve, which has lifted interest rates to a 15-year high as it battles inflation.
The Fed funds rate has shot up from 0.25 per cent at the start of the year to 4.5 per cent today, and is projected to peak at 5 per cent or even 5.25 per cent next year.
High interest rates boost currencies by attracting global money because investors get a higher return.
The dollar has performed a “high-wire act” but may struggle to sustain its dominance once the Fed switches later in the year and starts cutting interest rates, says Chris Turner, global head of markets at ING Group.
The dollar has performed a high-wire act but may struggle to sustain its dominance once the Fed pivots later in the year and starts cutting interest rates
Chris Turner,
global head of markets, ING Group
Mr Turner predicts a volatile year for every currency in 2023, including the greenback.
“Conditions do not look to be in place for a clean dollar trend, with neither a ‘risk-on’ dollar decline nor a ‘risk-off’ rally.”
It is too early to write off the dollar because it would remain a safe haven if the world slips into recession, says Fawad Razaqzada, market analyst at City Index and Forex.com.
“I would not be surprised if it bounced again, setting the stage for another bullish run.”
Verdict: The dollar is still the one to beat. It would take a brave trader to bet against it.
The euro
This has been a tough year for Europe, as a war rages in Ukraine, energy prices soar and growth slows.
It has been tough for the euro, too, which trades at just $1.061, down from $1.137 at the start of the year.
It could end 2023 close to parity at $1 as the German economy struggles to “re-orientate itself to a new world order”, Mr Turner says.
However, it could get a boost from the increasingly hawkish European Central Bank, which raised its main interest rate to 2.5 per cent in December and warned of more to come as inflation remains “far too high and is projected to stay above the target for too long”.
German analyst Heraeus has pointed out that the euro tends to rebound after rapid falls against the dollar and may appreciate next year.
Verdict: At some point, the euro will recover. We’re not there yet.
Sterling
The British pound has had a miserable year, falling faster than any major global currency except the Japanese yen.
It threatened to hit parity with the dollar in September, but recovered to trade above $1.20 after Rishi Sunak replaced Liz Truss as prime minister.
Sterling is sliding again due to widespread industrial action and a Bank of England split over interest-rate policy, Mr Razaqzada says.
“Rate increases might stop sooner than expected as high inflation continues to hurt consumers,” he adds.
Jonathan Watson, account manager at currency brokers Lumon, is also concerned. “We see a definite negative bias for sterling, amid concerns over recession and a predicted slowdown in economic activity.”
Yet, the gloom may be overdone and Morgan Stanley has named a pound recovery as one of its Top 10 Surprises for 2023, as energy prices fall and inflation eases.
Verdict: Any pound recovery is likely to be very, very bumpy.
Japanese yen
The Japanese yen hit a 32-year low against the US dollar this year, making it the worst performing global currency of all. At its low in November, it was down almost 25 per cent.
While every other central bank has been raising interest rates to combat inflation, the Bank of Japan’s benchmark rate is the last in the world to remain negative at -0.1 per cent.
That could change after inflation hit a 40-year high of 3.6 per cent in November, forcing the BoJ to lift the interest rate cap on 10-year government bonds from 0.25 per cent to 0.5 per cent.
In Japanese financial circles, that’s a big deal.
Verdict: The yen may snap back further in 2022.
Canadian dollar
The “loonie” has gained 7 per cent this year as the Bank of Canada raised its key lending rate to 4.25 per cent in December to combat inflation.
High global commodity prices should help support loonie strength, says Vijay Valecha, chief investment officer at Century Financial.
“The currency can become a significant pro-cyclical bet,” he adds.
Verdict: 2022’s best performing commodity dollar should hold up well next year.
Australian dollar
The Australian economy has been hit by slowing Chinese demand for its commodity exports and real estate, but may benefit as Covid lockdowns are eased, Mr Valecha says.
“While the commodity outlook is positive, a slowing housing market and possible softening in the labour market could exert more downside pressure on the currency,” he says.
Verdict: The Aussie dollar could struggle again.
New Zealand dollar
The Reserve Bank of New Zealand lifted interest rates to 4.25 per cent this year and markets expect them to peak at 5.5 per cent next year.
That is higher than in the US, squeezing the country’s rapidly slowing housing market but supporting its currency, Mr Valecha says.
“The New Zealand dollar’s prospects still look bullish.”
Verdict: Positive.
Indian rupee
As a major oil importer, the Indian economy has been at the sharp end of the energy shock, with the rupee falling almost 10 per cent against the dollar.
The recent oil price retreat has done little to help, Mr Valecha says.
“India’s widening $110 billion trade deficit implies rupee bearishness going into 2023, despite positive Indian stock market inflows.”
If the oil price falls further, that would help, otherwise “the bearish pressure could remain alive for another year”, he adds.
Verdict: Until energy prices fall, the rupee will flounder.
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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Tax authority targets shisha levy evasion
The Federal Tax Authority will track shisha imports with electronic markers to protect customers and ensure levies have been paid.
Khalid Ali Al Bustani, director of the tax authority, on Sunday said the move is to "prevent tax evasion and support the authority’s tax collection efforts".
The scheme’s first phase, which came into effect on 1st January, 2019, covers all types of imported and domestically produced and distributed cigarettes. As of May 1, importing any type of cigarettes without the digital marks will be prohibited.
He said the latest phase will see imported and locally produced shisha tobacco tracked by the final quarter of this year.
"The FTA also maintains ongoing communication with concerned companies, to help them adapt their systems to meet our requirements and coordinate between all parties involved," he said.
As with cigarettes, shisha was hit with a 100 per cent tax in October 2017, though manufacturers and cafes absorbed some of the costs to prevent prices doubling.
Company Profile
Company name: NutriCal
Started: 2019
Founder: Soniya Ashar
Based: Dubai
Industry: Food Technology
Initial investment: Self-funded undisclosed amount
Future plan: Looking to raise fresh capital and expand in Saudi Arabia
Total Clients: Over 50
UPI facts
More than 2.2 million Indian tourists arrived in UAE in 2023
More than 3.5 million Indians reside in UAE
Indian tourists can make purchases in UAE using rupee accounts in India through QR-code-based UPI real-time payment systems
Indian residents in UAE can use their non-resident NRO and NRE accounts held in Indian banks linked to a UAE mobile number for UPI transactions
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General Organisation of Radio and TV
Al Watan newspaper
Cham Press TV
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Ten tax points to be aware of in 2026
1. Domestic VAT refund amendments: request your refund within five years
If a business does not apply for the refund on time, they lose their credit.
2. E-invoicing in the UAE
Businesses should continue preparing for the implementation of e-invoicing in the UAE, with 2026 a preparation and transition period ahead of phased mandatory adoption.
3. More tax audits
Tax authorities are increasingly using data already available across multiple filings to identify audit risks.
4. More beneficial VAT and excise tax penalty regime
Tax disputes are expected to become more frequent and more structured, with clearer administrative objection and appeal processes. The UAE has adopted a new penalty regime for VAT and excise disputes, which now mirrors the penalty regime for corporate tax.
5. Greater emphasis on statutory audit
There is a greater need for the accuracy of financial statements. The International Financial Reporting Standards standards need to be strictly adhered to and, as a result, the quality of the audits will need to increase.
6. Further transfer pricing enforcement
Transfer pricing enforcement, which refers to the practice of establishing prices for internal transactions between related entities, is expected to broaden in scope. The UAE will shortly open the possibility to negotiate advance pricing agreements, or essentially rulings for transfer pricing purposes.
7. Limited time periods for audits
Recent amendments also introduce a default five-year limitation period for tax audits and assessments, subject to specific statutory exceptions. While the standard audit and assessment period is five years, this may be extended to up to 15 years in cases involving fraud or tax evasion.
8. Pillar 2 implementation
Many multinational groups will begin to feel the practical effect of the Domestic Minimum Top-Up Tax (DMTT), the UAE's implementation of the OECD’s global minimum tax under Pillar 2. While the rules apply for financial years starting on or after January 1, 2025, it is 2026 that marks the transition to an operational phase.
9. Reduced compliance obligations for imported goods and services
Businesses that apply the reverse-charge mechanism for VAT purposes in the UAE may benefit from reduced compliance obligations.
10. Substance and CbC reporting focus
Tax authorities are expected to continue strengthening the enforcement of economic substance and Country-by-Country (CbC) reporting frameworks. In the UAE, these regimes are increasingly being used as risk-assessment tools, providing tax authorities with a comprehensive view of multinational groups’ global footprints and enabling them to assess whether profits are aligned with real economic activity.
Contributed by Thomas Vanhee and Hend Rashwan, Aurifer
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Guide to intelligent investing
Investing success often hinges on discipline and perspective. As markets fluctuate, remember these guiding principles:
- Stay invested: Time in the market, not timing the market, is critical to long-term gains.
- Rational thinking: Breathe and avoid emotional decision-making; let logic and planning guide your actions.
- Strategic patience: Understand why you’re investing and allow time for your strategies to unfold.
Our family matters legal consultant
Name: Hassan Mohsen Elhais
Position: legal consultant with Al Rowaad Advocates and Legal Consultants.
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Starring: Kriti Sanon, Ayushmann Khurrana, Rajkummar Rao
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Killing of Qassem Suleimani
Other workplace saving schemes
- The UAE government announced a retirement savings plan for private and free zone sector employees in 2023.
- Dubai’s savings retirement scheme for foreign employees working in the emirate’s government and public sector came into effect in 2022.
- National Bonds unveiled a Golden Pension Scheme in 2022 to help private-sector foreign employees with their financial planning.
- In April 2021, Hayah Insurance unveiled a workplace savings plan to help UAE employees save for their retirement.
- Lunate, an Abu Dhabi-based investment manager, has launched a fund that will allow UAE private companies to offer employees investment returns on end-of-service benefits.
Red flags
- Promises of high, fixed or 'guaranteed' returns.
- Unregulated structured products or complex investments often used to bypass traditional safeguards.
- Lack of clear information, vague language, no access to audited financials.
- Overseas companies targeting investors in other jurisdictions - this can make legal recovery difficult.
- Hard-selling tactics - creating urgency, offering 'exclusive' deals.
Courtesy: Carol Glynn, founder of Conscious Finance Coaching
The biog
From: Ras Al Khaimah
Age: 50
Profession: Electronic engineer, worked with Etisalat for the past 20 years
Hobbies: 'Anything that involves exploration, hunting, fishing, mountaineering, the sea, hiking, scuba diving, and adventure sports'
Favourite quote: 'Life is so simple, enjoy it'
Libya's Gold
UN Panel of Experts found regime secretly sold a fifth of the country's gold reserves.
The panel’s 2017 report followed a trail to West Africa where large sums of cash and gold were hidden by Abdullah Al Senussi, Qaddafi’s former intelligence chief, in 2011.
Cases filled with cash that was said to amount to $560m in 100 dollar notes, that was kept by a group of Libyans in Ouagadougou, Burkina Faso.
A second stash was said to have been held in Accra, Ghana, inside boxes at the local offices of an international human rights organisation based in France.
