Pound-to-Dirham Rate Forecast: Solid Momentum, But Near-term Caution
- Written by: Gary Howes
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The pound rises towards the 4-month high-water mark against the UAE Dirham.
The pound to dirham exchange rate (GBP/AED) reached 5.0245 on Monday, its highest level since September 17.
Just a little higher and we reach the high reached on that day, which was 5.0390, and beyond here is the 6-month peak at 5.0633. ⭕ Compare today's best GBP/AED exchange rates.
However, there's a word of caution this Monday: the charts do hint at overbought conditions, confirmed by the Relative Strength Index (RSI) on the daily chart reaching 70.
When RSI reaches this level, it suggests bullish momentum has been powerful and persistent, but also that the rally may be vulnerable to a pause, consolidation, or short-term pullback as buying pressure becomes crowded.
Should the RSI mean-revert lower, GBP/AED would necessarily pullback and enter a period of consolidation. Those with AED purchase requirements should consider setting paying out a portion of their requirement now to secure elevated rates while keeping a portion of the requirement on account to benefit from an extension of the uptrend.
Pullbacks should be short-lived and any weakness should ultimately find renewed buying interest that takes the market to 5.0390 and then the 6-month peak at 5.0633.
A potential trigger to that short-term pullback that we look for good come from the Federal Reserve's midweek interest rate decision.
"The January FOMC meeting is likely to be uneventful," says David Mericle, an economist at Goldman Sachs. "Chair Powell is likely to emphasise that the FOMC has just delivered three cuts that should help to stabilise the labour market and is well positioned for now while it assesses their impact."
Such a wait-and-see message could do enough to disappoint a market hoping that the Fed will signal a clear intent to deliver further rate cuts, which could help the dollar-tied dirham to rebound and the GBP/AED pare its overbought rally.