British expatriates in the UAE who regularly send money home have been feeling the squeeze as an empowered pound has risen against a diminished US dollar.
With Brexit uncertainty being supplanted by an economy plotting a positive course beyond Europe and the Covid-19 pandemic, the dollar-pegged UAE dirham has been buying noticeably less sterling in recent months.
And that could impact savings, purchasing power or render UK-domiciled bills more burdensome for some Britons in the UAE.
In early trading on Tuesday, sterling rose 0.2 per cent to $1.4240 after briefly hitting $1.4248 against the greenback – its highest level in three years and marking a second straight monthly gain of 2.8 per cent in May, according to Reuters.
Father-of-one Ryan Dixon has been diligently remitting a portion of his household’s earnings for nearly five years as he and wife Mette own property in the UK.
But with Britain finally out of Europe and shedding Covid-19 restrictions, the dirham’s pound-buying power has reduced, prompting the 36-year-old to reverse tact.
“We have simply stopped sending money home,” Mr Dixon, a client manager with Espace Real Estate, says.
“We have a growing family, are committed to staying here and feel secure in our jobs, so we decided to buy property here and actually move money across from the UK.”
The couple began remitting cash when they relocated to Dubai in late 2016, averaging one salary saved and sent as “one chunk” every four to six months.
“We stayed pretty consistent … [and] got excited how much more we were getting during that [Brexit uncertainty] period,” he says.
The pound’s significant price movements in recent times, including its 30-year low in March 2020 of $1.14 to its recent three-year highs, can be attributed to some volatility surrounding post-Brexit political developments that has been heightened by the pandemic outbreak, Gaurav Kashyap, head of futures at EGM Futures DMCC, says.
“Since then, due to unprecedented global central bank easing led by the US Federal Reserve, the pound has recovered nicely against the US dollar and I expect to see the pound, particularly against the US dollar, remain well-bought,” he says.
“The Federal Reserve remains very dovish to future US rate hikes and will have no choice [but] to continue their massive easing programmes. This will see the US dollar remain weaker against major currencies, particularly the pound.”
While less favourable exchange returns influenced Mr Dixon’s decision to stop sending money home, the August arrival of a second child influenced a desire to put down deeper roots in Dubai.
“The exchange rate, of course, helped in that regard, but the reality is we would have done it anyway,” he says.
"The perception is that it's nowhere near as attractive now to send money home for us – the reality is that it's actually not that different to when we first got here.
"For us, there's actually only a one pence difference right now versus when we arrived."
However, that difference could widen further, Mr Kashyap says.
The Bank of England's Monetary Policy Committee recently noted it expected a faster economic recovery than previously anticipated – and Mr Kashyap expects the pound to move higher against the greenback.
“We are currently trading at a key technical level of 5.20 against the dirham,” Mr Kashyap adds. “However, a move to the channel between 5.4/5.65 needs to be considered in 2021 and early 2022.”
While that’s good news for UK tourists visiting the UAE, it would further erode the effectiveness of UK-bound earnings and could discourage residents from making frequent remittances.
The currency movements have meant a seemingly mixed picture for foreign exchange operators in recent months.
Normally there is a trend, especially among high-net-worth UAE customers, to wait for better rates to transfer funds in bulk to Britain, Adeeb Ahamed, managing director of LuLu Financial Group and Lulu Exchange, says.
“Due to this reason, and because of recent weakening of the dirham against the pound, we have seen a slight dip in remittances to the UK corridor from our British customers,” he says.
“We noticed the slide in remittances towards the end of April … nearly 12 per cent month-to-date.”
However, Mr Ahamed, who is also vice chairman of the Foreign Exchange & Remittance Group, believes there could be better news for British expats, with continued pandemic factors and the UK suffering one of the biggest economic recessions among major economies putting the pound “under pressure in 2021”.
“Anyone having a substantial amount to remit should wait for the right opportunity as the pound may weaken in times to come,” he adds.
Joyalukkas Exchange, meanwhile, has experienced an increase in UAE/GBP transactions compared with last year.
The average increase in the single euro payments area (SEPA) for remittances was 10 to 15 per cent from February onwards, Antony Jos, Joyalukkas managing director and FERG treasurer, says. Mr Jos expects this trend to continue as travel restrictions ease.
“There will be a good flow of people travelling back to jobs and students to universities – payments for fees and living expenses will be a major purpose of remittance,” Mr Jos says.
“The recent rise against the dollar has also been supported by investor concerns that rising inflation in the US could prompt interest rate increases … this trend would continue for some more months unless a second or third wave of Covid-19 occurs, or an interest rate change from the Bank of England.”
Asked by The National to comment on the shifting UK currency rate, members of Facebook community British Dads Dubai were largely stoical. Some were accepting that the "good times" were over for now, while others acknowledged that the ratio was "still in a good place" compared with the past – or what could follow.
Long-term British resident Richard Wilcox, 46, remembers when he used to receive even less sterling for his dirhams than what he is getting now.
He has been sending money home since 2002, from the equivalent of £500 to £10,000 monthly, for savings and a property purchase.
The father of two, who works in IT sales, found a rate around Dh7 to £1 ($1.42) when he first arrived in Dubai.
“I was moving from Kuala Lumpur where the rate was fairly the same, so I used money in the UK to bring to Dubai and enjoyed the purchasing power it gave,” Mr Wilcox says.
“Now that it has fallen around 30 per cent – give or take – I leave the pounds in the UK.”
Like many who frequently send money back to the UK, Mr Wilcox has examined numbers past and present, and accepts the cyclical nature of currency markets.
“As individuals, we have little to no influence over the UK/dirham exchange rate and really only see marginal gains when transacting £10,000 back to the UK,” he says.
“Therefore, what this ultimately boils down to is maintaining any and all commitments in the UK, which are directly affected by the rising pound.
“I was over the moon when the pound was in the four range for sending money back as I had more tokens here for myself. Even at the five mark, I am still happy as I am still better off than 20 years ago.
“For me, the rate works positively if the pound goes to a seven-to-one ratio and I sell my property in the UK, bring the money here to buy [property] – or negatively, by having to send more money back,” Mr Wilcox adds.
With several ways to remit from the UAE, including bank transfers, exchange houses and online brokerages, residents can shop around for a competitive deal.
Some may review their remittance strategy further, perhaps taking exchanged hard currency when travelling home to avoid transfer charges – or simply keeping cash in their UAE account.
Stuart Ritchie, director of wealth advice at AES, does not recommend either strategy to save on remittance fees “for a variety of reasons”.
“Most importantly, cash will be eroded by inflation, meaning the value will decrease over time,” he says.
The financial adviser also notes that UK liabilities, including debt, is more expensive for people earning in dirhams compared with last year’s Dh4.50 to the pound scenario.
“The key takeaway is to pay off any UK debt as soon as possible to avoid additional fees on those liabilities and also to be safe from any potential falls in the UK pound, which may make it even more expensive to pay off,” he says.
For those less inclined to send cash, there are a variety of savings and investment opportunities in the UAE. These range from National Bonds to buying into the recovering property market.
“I know property often seems like a good investment and many international citizens have goals of owning property in the UK or even in the UAE where they live,” Mr Ritchie says.
"However, if the property is not for you and your family to live in, but solely for financial gain, it's not a good investment. Property returns are typically lower than equities over the long term."
Using offshore banking as a method for moving UAE earnings with accessibility, security and taxation benefits is an option, Mr Ritchie says. However, he stresses the “right type of offshore bank account can play a critical role in wealth creation because of the facilities which become available”.
Additionally, US FinTech platform Revolut is coming to the country, “which allows global citizens to enjoy international spending and transfer”, Mr Ritchie says.
For now, Mr Dixon is keeping his dirhams in Dubai as he prepares to move into his own home and welcome a son to the family.
“For us, the influencing factors behind moving money either way are first and foremost life situations,” he says.
"[The] exchange rate is something that we look at afterwards … unless it's drastically against us, we're still ploughing on with the life plans."