Europeans in the UAE are taking a long-term view on the weak euro
The currency fell to a more than two-year low against the dollar at the end of August, before rebounding slightly last week
While the UK pound has been one of the biggest currency stories of the last few years — with every Brexit twist and turn affecting its value — the euro has troubles of its own, thanks to a gloomy economic outlook and geopolitical factors such as the US-China trade war.
On August 30, the euro sank below $1.10 for the first time since May 2017 ahead of US tariffs on China taking effect on September 1. It was knocked even lower last week after a survey showed European manufacturing contracted for seven straight months, reinforcing expectations that the European Central Bank would ease monetary policy at its meeting on September 12. Dollar weakness caused by a contraction in US manufacturing data for the first time in three years helped the euro rebound to close the week on $1.10. But the currency's woes are far from over.
You now look at it and say, the euro exchange rate is great. The next thing you know, three months later, it’s even better.
Jorge Camarate, Portuguese expatriate
“Given the impact of the trade war on the industrial production which the eurozone heavily relies on, we may continue to see the single currency sliding further in the short term,” says Hussein Sayed, chief market strategist at FXTM in Dubai.
With so many factors at play, Europeans living in the UAE say they are largely ignoring the day-to-day fluctuations of the euro, instead benefiting from the currency’s long-term decline against the dollar-pegged dirham by purchasing properties in Europe and consistently transferring money back home.
A decade ago, one euro equalled around $1.43 to $1.50, while five years ago a euro would buy you $1.21 to $1.39. Since the start of this year, the euro has fallen 4.5 per cent from around $1.14 to the current $1.10 mark.
Jorge Camarate from Portugal and his wife Emma Ashworth from the UK moved to Dubai eight months ago. Mr Camarate, a partner in a global strategy consulting firm, earns in dollars and Ms Ashworth, a regional sales director in a global hotel group, earns in dirhams. They remit money regularly to an offshore account in the Channel Islands and over the summer they bought an apartment in Lisbon.
“We wanted to buy a property in the first place, but the fact that we earn in dollars … just gives you that final confidence that it’s affordable,” says Mr Camarate, 41. “It made it easy for us.”
Mr Camarate says he avoids timing remittances to currency fluctuations, though. “I used to live in South Africa before [where the rand has been steadily declining] and I’ve learnt the hard way how difficult it is to time remittances if you try to tie it to currencies,” he says.
“You now look at it and say, the euro exchange rate is great. The next thing you know, three months later, it’s even better,” he adds.
The couple send money to their offshore account on a regular basis and when needed to make payments, such as for the Lisbon property. With a dual-income household, they have been able to “save naturally” and plan for major expenses, such as nursery tuition for their two-year-old son.
They are also keeping an eye on the pound. Sterling plunged as much as 0.8 per cent to $1.1968 (Dh4.40) last week, the lowest since 2016 when the UK voted to leave the European Union. It later moved back above $1.21 after MPs brought a bill forward to block a no-deal Brexit before the October 31 deadline.
Mr Camarate says their next move may be getting in on the UK property market. “That’s one thing that I’ve been wondering, because that’s the currency that has been affected a lot,” he says. “And because my wife is British.”
Christelle Ferro from France and husband Julien Bertin from Belgium also recently bought a property in Europe — an apartment in Cannes, close to where Ms Ferro grew up. They have lived in Dubai for the past seven years, have a Paris apartment that is rented and bought their villa in The Lakes community in Dubai a couple of years ago.
The Cannes property purchase was unplanned, but came up as an opportunity in July. “It was an apartment on sale, it was a very good location, the price was amazing. And it was close to my parents and my family,” says Ms Ferro, 43. “We thought that’s a great opportunity, it’s going to be a house where we want to live.”
Mr Bertin, who works as an executive at a technology company, transfers around 60 per cent of his salary to dollars in a UK account for savings and investments, or euros in a France account to pay off their mortgages.
“At a certain time, Julien was looking at fluctuations to see the best timing and make sure we gain in the sense from the transactions, but then he stopped doing that,” says Ms Ferro. “It took too much time to continuously look at the market.”
Rajiv Raipancholia, chief executive of Orient Exchange, says the euro-to-dirham exchange rate started at Dh4.22 in January and has depreciated to Dh4.03 in September. The exchange house has not seen much growth in individual remittances in the past nine months “as these are regular monthly transfers that need to be sent irrespective of exchange rates”.
There has been, however, a surge in corporate euro remittances of around 3 to 5 per cent in terms of turnover, Mr Raipancholia says.
“Imports have become cheaper from Europe, so we have seen traders importing more goods from Europe for sale in the local market or onward export,” he explains. “In addition to this, some traders have switched to euro transfers instead of US dollar transfers to take advantage of a cheaper exchange rate.”
Dino Ibric, associate director of Swissquote MEA, says the Swiss banking group specialising in online financial and trading services has seen a “a correlation between client enquiries and investments linked to the depreciation of the euro which as a consequence, we have had a year to date double-digit increase in total euro holdings”.
So, what is next for the euro? Economic data has deteriorated significantly in the eurozone and the risk of recession is on the rise in Germany, Italy and the UK. This has led many institutional investors to purchase government debt, which sent bond yields further into negative territory, says Mr Sayed of FXTM.
“If the trade dispute between the US and China doesn’t resolve soon, we may see more inflows into these instruments,” he says. “This makes the euro an unattractive currency compared to the US dollar which still has some positive yield, and hence the US dollar may appreciate further. However, if the euro tests levels below $1.05 it's highly likely President Trump and the Treasury Department would intervene to curb the dollar’s appreciation.”
The ECB meeting on Thursday, when a rate cut of 0.1 per cent to 0.2 per cent is expected, may also have an effect.
One Spanish expatriate in Dubai, who works as a consultant for a government institution and gets paid in euros, is not taking any chances that the currency may fall further. The Spaniard, who declined to be named, says the euro’s deterioration since he started his job last January has resulted in him earning less each month.
“As I’m paid in euros, I have to exchange my money, so the exchange rate is very low for me right now. I’m actually losing more than 10 per cent of my salary every month, so that’s too high,” he says. “I’ve been forced to renegotiate my salary.”
He and his employer agreed on a set exchange rate of Dh4.019. “I realised the exchange rate is always decreasing and it didn’t seem that it was going to increase again, so I had to make the decision,” he says.
Giving certainty to something as uncertain as a currency’s exchange rate may be a wise move. For everyone else, as Mr Camarate put it, “half the time you get it right, half the time you get it wrong”.
Updated: September 10, 2019 09:00 AM