AED/EUR Outlook:
Bearish, as the rate is below its recent average and near recent lows, influenced by economic concerns.
Key drivers:
• Rate gap: The UAE Dirham remains stable due to its peg to the US dollar, while the European Central Bank's decisions on interest rates impact the euro's strength.
• Risk/commodities: Global oil prices are currently volatile and above average, which could support the AED since oil revenues are crucial for the UAE economy.
• Eurozone inflation: Recent inflation data shows eurozone inflation falls below the ECB's target, raising concerns over potential future interest rate cuts and weakening the euro.
Range:
Expect the AED/EUR pair to hold within its recent range, potentially testing its lows but facing strong support from the Dirham's stability.
What could change it:
• Upside risk: A significant reduction in geopolitical tensions could strengthen the euro.
• Downside risk: Further decreases in eurozone inflation or comments from ECB officials suggesting dovish (supportive of lower rates) policies might pressure the euro further down.
