AED/EUR Outlook: Bearish, as the rate is below its recent average and near recent lows, pressured by the recent performance of the euro and oil prices.
Key drivers:
• Rate gap: The Central Bank of the UAE maintains its interest rates aligned with the US Federal Reserve, which adds stability to the AED. In contrast, the ECB’s monetary policy remains neutral.
• Risk/commodities: Oil prices are at 90-day highs, raising concerns about inflation in Europe, which has historically detracted from the euro's strength against stable currencies like the AED.
• One macro factor: Eurozone inflation is projected to taper down, which may hinder the euro's recovery against other currencies if growth does not pick up as expected.
Range: The AED/EUR is likely to drift within its stable 3-month range, reflecting its current position near the lows.
What could change it:
• Upside risk: A substantial drop in oil prices could provide relief to the euro and improve its performance.
• Downside risk: If the geopolitical situation in Europe worsens, it may lead to further depreciation of the euro against the AED.
