Further US dollar weakness could reduce expat remittances from Gulf

While regular money transfers are unlikely to change, currency fluctuations do affect larger flows, experts say

Remitters often take advantage of favourable exchange rates, aiming to get more money per dirham when transferring larger sums. Victor Besa / The National

Continued weakness in the US dollar, to which most Gulf currencies are pegged, could lead to a drop in remittances by expatriates in the UAE and wider region, experts say.

The dollar is on track for its weakest monthly performance since November 2022, amid worries about trade policies under US President Donald Trump and investors fleeing US assets.

“The effects of a weaker dollar are currently being absorbed. If the dollar weakness persists, then we could see a longer-lasting impact on remittances,” Charu Chanana, chief investment strategist at Saxo Bank, told The National.

“That could lead to some behavioural shifts for foreign workers in the UAE and Saudi Arabia remitting money to their home country, such as the Philippines, Egypt or Pakistan.”

The value of what people get for their dirhams or riyals in their home currencies will be much smaller. Hence they may send less money back home or wait for the exchange rate to improve, she said.

However, the bigger concern would be a reduced inflow of foreign workers into Gulf economies because they may find better opportunities at home or in other countries where currencies are stronger.

It will also result in wage pressures on companies in the Gulf, but “I don't think we're there yet”, Ms Chanana added.

The dollar index is down about 9 per cent since the inauguration of Mr Trump as the administration’s plans to impose tariffs on US trading partners have rattled investors and hurt financial markets.

Foreign exchange volatility

Many of the expatriates in the UAE follow a “regular pattern” of remitting money back home to support their families, said Hasan Al Fardan, chief executive of Al Fardan Exchange.

“As a result, the flow of remittances along these corridors tends to remain stable and is generally less sensitive to fluctuations in foreign exchange rates,” he said.

“However, when it comes to large-ticket payment flows, we do observe an impact from foreign exchange volatility. Remitters often take advantage of favourable exchange rates, aiming to get more money per dirham when transferring larger sums. This behaviour is particularly noticeable in corporate payments as well, where we see a trend of businesses timing higher-value transactions to benefit from foreign exchange movements.”

Al Fardan Exchange has observed a “measured approach” by some expatriates across income groups when it comes to timing their remittances, particularly in periods of currency fluctuation.

Charu Chanana, chief investment strategist at Saxo Bank, says the remittance industry is currently absorbing the effects of a weaker dollar. Photo: Saxo Bank

“We remain confident in the resilience of the remittance sector under current macroeconomic conditions,” Mr Al Fardan said, adding that the rise in digital adoption is expected to keep remittance volumes strong through the rest of the year.

Mohammad Raafi Hossain, chief executive and co-founder of Fasset, a UAE company that offers blockchain-enabled remittances, said, on an individual-per-transaction basis, first-quarter remittances are down by about 5 per cent to 6 per cent annually on their platform. But the overall flow of cross-border money flow in the same time period is up over 10 per cent, mainly driven by small and medium enterprises.

It’s business as usual now but “we are waiting to see the final decision by the US administration on their 90-day tariff pause”, he said.

He cited how a weaker dollar helps exports to other markets in some cases. There's “probably significant activity” in corridors that can compete better with a weaker dollar.

“No one is more well-positioned to take advantage of a reorganisation of trade than the UAE,” he said. “From a UAE perspective, if anything, tariffs are probably a net gain.”

What's driving dollar weakness

Saxo Bank’s Ms Chanana attributed the weakness in the US dollar to the fading of US exceptionalism, which she believes has persisted for too long.

There are concerns that the US economy could be entering a recession, if not a slowdown in growth. That takes away some growth from the US dollar, she explains.

When it comes to large-ticket payment flows, we do observe an impact from FX volatility

Hasan Al Fardan,
chief executive, Al Fardan Exchange

There are also questions around the independence of the US federal Reserve, which has been one of the anchors of the US economy.

“As we continue to price in the impact of tariffs, there could be reasons for the US dollar’s valuation premium to continue to erode. However, I don't think we're at a point where we need to be concerned about whether or not the US dollar can be the global reserve currency,” Ms Chanana said.

“It is an environment where the USD and US assets will be less of an anchor for global markets, but they will still be an anchor. People want to move out from US equities and US Treasuries to diversify into other regions, because we are facing a new global economic order which is much more fragmented than in the past decades.”