Following a Goldman Sachs research that predicted a “tariff-fueled boom” for the US dollar, financial experts believe that the dirham and other dollar-pegged Gulf currencies will continue to climb against several South Asian currencies.
Such a prospect of regional currencies strengthening further presents a problem for South Asian expats in the Gulf, who send home over $120 billion annually: Should they wait to see how tariff-fueled dollar appreciation against their home currencies will unfold in the upcoming months? Analysts have cited the fixed exchange rate regime in the Gulf and structural weaknesses in South Asian countries as the main causes of this difference.
The value of the GCC’s currencies, such as the Saudi riyal and dirham, fluctuates in tandem with the US dollar because they are pegged to it. Goldman Sachs believes that possible US import tax increases will cause the currency to appreciate again, which could change the nature of international trade. Gulf currencies would automatically rise in value in response to a higher dollar, increasing their advantage against floating peers like the already-pressured currencies of India and Pakistan.
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