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The pound to dirham exchange rate (GBP/AED) looks poised to recover over the coming days.
Last Monday's Week Ahead Forecast said GBP/AED was well supported at 5.0, and we held a constructive view on the currency pair for the short-term.
However, it turned out that we had underestimated the fierce reaction to soft UK labour market data that showed UK unemployment rate rose to a 5-year high.
The release raised the odds of a March rate cut at the Bank of England, while prompting markets to raise the possibility of up to two further cuts.
GBP was broadly lower across the board in response to the repricing, and GBP/AED slid down to the 200-day moving average at 4.9380.
This technical momentum indicator supported the pair through the latter half of the previous week, stabilising sterling after the post-jobs report shock.
This builds the supportive credentials of this level, and we have since seen GBP/AED rise back to 4.9622.
So the coming week is one in which we would anticipate stability to build and perhaps offer GBP/AED a chance of a recovery towards 4.98.
Another supportive development for this exchange rate is the setback in the dollar in the wake of last Friday's U.S. Supreme Court ruling on President Donald Trump's tariffs.
The court voted 6-3 against his use of special presidential powers to enact tariffs.
There was a strain of thinking that said that the removal of tariffs would be good for the dollar. But, the decision has only raised uncertainty as to where tariff policy will go next as Trump has said he will come up with alternative solutions.
So, in short, the ruling has raised U.S. policy uncertainty, which isn't helpful to domestic stocks, bonds or the dollar.
For the dollar-linked dirham, this is a near-term headwind and helps GBP/AED stay on the bullish side of the 200-day MA and look higher again.