In a significant development in the foreign exchange market the value of major foreign currencies — namely the US Dollar Euro Saudi Riyal and UAE Dirham — registered an upward trend in the interbank market throughout the week This rise has drawn attention from investors importers exporters and policymakers signaling broader implications for the economy
Steady Rise in Major Currencies
The week saw consistent demand for foreign currencies leading to an appreciation against the local currency in the interbank market According to market sources the US Dollar which remains the most widely traded foreign currency climbed steadily Traders attributed this increase to heightened demand from importers and corporate entities meeting their foreign payment obligations coupled with sluggish inflows of foreign exchange .
The Euro also strengthened in tandem with global trends buoyed by optimism regarding the Eurozone’s economic performance and hawkish signals from the European Central Bank ECB The Euro’s rise reflects both international and domestic demand as well as a shift in investor sentiment toward safer assets amid regional uncertainties .
Likewise the Saudi Riyal and UAE Dirham — both of which are pegged to the US Dollar — followed the greenback’s upward trajectory These currencies tend to mirror movements in the Dollar due to their fixed exchange rate systems and their appreciation was widely anticipated as the Dollar gained ground in the interbank market .
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Market Dynamics Behind the Surge
Several factors contributed to the increase in foreign currency values during the week One of the primary drivers was the growing gap between demand and supply of foreign exchange in the interbank market Importers particularly in the energy machinery and consumer goods sectors ramped up their purchases of foreign currencies to settle their letters of credit LCs and other international obligations .
In contrast inflows such as export proceeds remittances and foreign investments remained below expectations Analysts noted that remittance inflows have seen a seasonal slowdown while foreign direct investment FDI continues to lag due to lingering economic uncertainties and structural challenges .
Moreover market participants also cited speculative buying as a key factor in the upward trend Currency traders and banks were seen accumulating foreign currency holdings in anticipation of further depreciation of the local currency thereby adding pressure on exchange rates .
Implications for the Economy
The appreciation of major foreign currencies against the local unit carries mixed implications for the economy On one hand a stronger Dollar and related currencies raise the cost of imports potentially increasing inflationary pressures Imported goods especially petroleum products machinery and food items are likely to become more expensive in local markets affecting both businesses and consumers .
On the other hand exporters may benefit from the currency trend as a weaker local currency makes their goods more competitive in the global market Exporters in sectors such as textiles IT services and agriculture stand to gain from improved profit margins in local currency terms .
However experts caution that persistent foreign currency appreciation could widen the trade deficit if exports do not pick up sufficiently to offset higher import costs This could in turn place additional strain on the country’s external account and foreign exchange reserves .
Policy Response and Outlook
The central bank is closely monitoring currency movements and may intervene in the market to ensure stability if volatility rises “further Some analysts believe that mild depreciation may be tolerated to boost exports and remittance inflows but unchecked currency fluctuations could hurt overall economic confidence .
Looking ahead the market’s focus will remain on global factors such as US Federal Reserve policy decisions oil prices and geopolitical developments as well as local economic indicators including inflation foreign reserves and the balance of payments position .
In conclusion the increase in the Dollar Euro Riyal and Dirham during the week underscores the complex interplay of global and domestic factors affecting exchange rates Both businesses and consumers are advised to stay cautious and prepare for potential fluctuations in the coming weeks .