Bias: Range-bound, with EUR/AED near the 90-day average and in the middle of the three-month range.
Key drivers:
- Rate gap: ECB maintains a neutral policy path with rates in a narrow corridor, while the UAE dirham remains tightly tied to the US dollar via the peg, so USD moves tend to drive AED more than EUR moves.
- Risk/commodities: Oil price strength supports the dollar, which tends to push EUR/AED higher given the AED’s USD peg.
- Macro factor: ECB guidance for a neutral stance in coming years supports a steady euro, limiting downside unless energy or growth data surprise, while inflation trends and wage dynamics remain a key watch.
Range: The pair is likely to drift within a narrow band and hover around the middle of the recent range.
What could change it:
- Upside risk: ECB signals a more hawkish tilt or a surprising improvement in Eurozone inflation data.
- Downside risk: a renewed USD rally driven by stronger US rate expectations or weak eurozone data.
