Weaker US dollar dents purchasing power and discretionary spending in Gulf

Overseas travel, foreign education or buying luxury goods abroad are becoming more expensive, experts say

Tourists from the Middle East in Krakow, Poland. Gulf residents could face much higher costs for overseas holidays due to movements in the US dollar. Getty Images

A weaker US dollar is weighing on the purchasing power of people in the Gulf region, denting discretionary spending and reducing international remittances, but is supporting regional tourism inflows, according to industry experts.

On Tuesday, the dollar index fell 0.2 per cent at 11.56am UAE time to a more than three-year low, hitting its lowest level against the euro since September 2021.

The greenback, which is considered the world's reserve currency, has weakened by more than 10 per cent in the first half of this year, dragged down by US fiscal and trade policy direction.

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The currencies of five countries in the six-member Gulf Co-operation Council are pegged to the greenback, with Kuwait's dinar being the only exception, and movements in the US dollar tend to have a direct impact on spending patterns in the region.

“A weaker US dollar carries significant implications for the Gulf region, where most currencies, such as the UAE dirham and Saudi riyal, are pegged to the US dollar,” Vijay Valecha, chief investment officer at Century Financial, says.

“This peg ensures currency stability, but it also means that movements in the USD directly influence the region’s external financial behaviour, particularly remittances, spending, and global investment flows.”

Uncertainty over President Donald Trump’s aggressive pursuit of hefty tariffs on global trading partners and his constant pressure on the US Federal Reserve to slash rate cuts have prompted investors to shun American assets, including the dollar. The greenback's first-half performance is the worst since 1973.

Spending

In the UAE and wider Gulf, a weaker greenback can influence both domestic and international spending behaviour, says Ben Bolger, a financial planner in Abu Dhabi and founder of Squirrel Education, a company that teaches schoolchildren financial independence.

“For residents earning in local currency, international expenses such as overseas travel, education, or luxury goods from countries with stronger currencies like the euro or pound, become more expensive, reducing a person’s international purchasing power,” Mr Bolger says.

“Domestically, the picture is slightly more nuanced. While the peg helps stabilise local pricing, many goods and services are ultimately tied to foreign supply chains, so a weaker dollar can lead to gradual price increases over time, contributing to inflation and influencing household budgets.”

With a weaker dollar, the cost of non-dollar imports, mostly from the EU, Japan and the UK, also rises, which in turn, fuels inflation, according to Nicolas Michelon, managing partner of Alagan Partners, a Dubai corporate geopolitics consultancy.

This will be particularly strong for goods such as machinery, consumer electronics and pharmaceuticals, which the Gulf economies import from the EU, Japan and the UK, he says.

“An increase in imported inflation will lead to a purchasing power erosion among consumers in the Gulf for all imported goods, particularly those that are priced in stronger currencies like the euro,” he adds.

A weaker US dollar typically reduces the value of money sent home by Gulf-based foreign workers. Razan Alzayani / The National

Remittances

Weakness in the US dollar can also lead to a drop in remittances by expatriates in the UAE and wider region, experts say.

For remittances, a weaker dollar typically reduces the value of money sent home by expatriates, says Hamza Dweik, head of trading at Saxo Bank Mena.

When converted into local currencies such as the Indian rupee or Philippine peso, the amount received is lower, which can diminish the purchasing power of families relying on these funds. This may lead to changes in remittance behaviour, with some expatriates choosing to delay transfers or reduce the amounts they send, he adds.

Syed Muhammad Ali, chief executive of digital payroll platform myZoi, says there are varying behaviours by senders depending on their income levels and needs of beneficiaries.

“Lower income families who often depend on these remittances as their only source of livelihood expect to receive the funds every month in a timely manner. The sender, therefore, would look for the best available exchange rates, sometimes opting for informal channels like hundi/hawala if the rates offered are more attractive,” he says.

“Those who have more flexibility can wait for the rates to improve and often send larger amounts when the USD [and Gulf] currencies strengthen to take advantage of the market.”

Mr Valecha of Century Financial says that in recent months, the currencies of several recipient countries have depreciated more sharply than the dirham.

For instance, the Indian rupee weakened to Dh23.5 per in June 2025, prompting a noticeable increase in remittance activity from Indian expatriates.

Looking ahead, if the dollar continues to soften while emerging market currencies remain under pressure, remittance behaviour could remain elevated, Mr Valecha adds.

Investing

From an investment perspective, a weaker dollar prompts a shift towards assets seen as a hedge against currency volatility, such as gold or foreign equities, or increase interest in local investments that are less exposed to exchange rate risk, Mr Bolger says.

“A weaker USD is beneficial for the UAE, as it makes investing into the Emirates cheaper from countries with stronger or appreciating home currencies, such as the euro, Japanese yen, Swiss franc and most emerging market currencies,” says Anita Gupta, chief investment officer at DIFC-based wealth management firm Wealthbrix Capital Partners.

“This would boost foreign direct investment and the real estate sector especially.”

Retail investors, however, have less disposable income, as savings are typically in UAE dirhams, hence a weaker currency would lead them to more domestic investment, she adds.

Saxo Bank’s Mr Dweik says a weaker dollar often prompts investors to reassess their portfolios and a shift away from dollar-denominated assets in favour of those in stronger currencies or more stable markets.

“Gulf investors might also explore diversification strategies, seeking opportunities in the eurozone, Asia, or emerging markets,” he adds.

“At the same time, overseas investments, particularly in real estate or equities priced in stronger currencies, could become more expensive, potentially slowing outbound capital flows.”

Mr Valecha says a weaker dollar also makes emerging-market stocks and bonds more appealing because US investments will offer lower returns.

A weaker dollar may prompt a shift toward assets seen as a hedge against currency volatility, such as gold or foreign equities

Ben Bolger,
financial planner, Abu Dhabi

Travel

Continued weakness in the US dollar also supports inbound travel to the UAE and other Gulf destinations from countries such as western Europe, Russia and India, industry executives say.

“Travellers from the eurozone, from pound-sterling areas, will find Gulf destinations cheaper because of a weak dollar,” Mr Michelon of Alagan Partners says.

“The impact on the outbound tourism could be very different, and we could see Gulf residents face much higher costs for European holidays due to the euro strength.

“That could potentially massively redirect travel to more regional destinations, such as Egypt, Jordan, or Lebanon, which is reopening to tourism.”

The euro has risen almost 12 per cent this year, benefiting from a softer dollar.

Many Gulf hotels price their services in US dollars, which usually makes them costlier for non-US tourists when the dollar strengthens. So, a weaker US dollar reverses that trend, Mr Michelon says.

It could “reinforce the attractiveness” for non-GCC tourists to come and visit the GCC because hotels will be priced more competitively for them, he adds.