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The UAE economy will benefit from a weakness in the US dollar caused by the impact of quantitative easing programmes put in place by the Obama Administration, analysts said.

A weaker dirham, which is pegged to the greenback, will eventually act as a stimulant to the UAE economy, they said.

On March 19, the US dollar recorded the steepest fall against the euro since December as the Federal Reserve said it will purchase $300 billion (Dh1.1trn) of longer-term Treasurys, spurring speculation the central bank is purposely weakening the currency. The dollar weakened beyond $1.34 per euro for the first time since January 12. The UAE dirham was valued at $0.2722 yesterday.

“A weakness in the USD, given the dirham’s peg to the currency, will actually be a positive for the UAE economy this time around. Last year, when the economy was overheating, we needed a stronger currency to tackle inflation, especially imported inflation,” said Marios Maratheftis the Regional Head of Research at Standard Chartered, Dubai.

The crisis has changed the challenges of the UAE economy, Maratheftis said. “This year, the business cycle has turned. The challenge now is to achieve adequate growth rather than tackle inflation. Inflation will fall dramatically this year, and a weaker currency will act as a monetary policy stimulus for the economy. One sector that will benefit from is tourism, as it will provide the UAE with more competitive prices.”

This does not mean, however, that the UAE Central Bank should look at a possible revaluation of the dirham against the dollar, said John Wright, the former chief executive of Bank of Kuwait and Bank of Oman and a member of the Arab-British Chamber of Commerce.

“Imports would be helped if the dirham were revalued, but what would one do when the oil price goes up to $150 again,” he said. Wright said “it makes no sense” for the GCC currencies to move away from the dollar peg as exports are virtually 100 per cent priced on the greenback”.

With interest rates near zero, the Federal Reserve has now resorted to quantitative easing, which involves increasing money supply by printing new currency notes. The move is expected to devalue the US currency, apparently something that the US authorities want to stimulate exports.

The move will help the US economy, but will not single-handedly pull the country out of recession. Standard Chartered’s Maratheftis said: “A weak dollar will also be positive for the US economy, as it will help make US exports more competitive. Price alone, however, in view of a global slowdown, will not be enough to pull the US economy out of a recession this year. It will nevertheless help.”

Wright added: “A weaker dollar will benefit the US at a time of great need as it means that exports are much more competitive and inward investment is much cheaper.”