Like many expatriates working in Dubai, Jonathan Warmington regularly sends money back to his home country.
As Mr Warmington, 37, is British, this means converting his money from dollar-pegged dirhams into sterling, and right now he can get a great rate.
Last summer, US$1 traded at a low of 58 pence, but that has since risen to nearly 67 pence.
That may not seem dramatic, but it is a rise of 15 per cent, which can make a big difference when sending large sums home.
The expatriate, who has lived in Dubai for six years and is the director of a legal recruitment firm called Footprintlegal, gets a competitive rate on his money by using a currency transfer service. “I like to build up a large sum of money in a dollar-denominated offshore savings account and wait for a time when the dollar is strong to maximise my buying power,” he says.
The recent surge in the dollar makes now a good time to buy pounds, but Mr Warmington suspects he may soon have an even better buying opportunity. “The UK is facing a general election in May, and nobody knows which party will win. Given all the uncertainty, I suspect the exchange rate will become even better, so I’m tempted to wait.”
This is the kind of call expatriates regularly make, and it is never easy to get it right. “Even a small shift can add up to thousands of dollars when sending large sums home, so it does weigh heavily on the mind,” says Mr Warmington.
He isn’t complaining, though. Today’s strong dollar is good news for most UAE-based expats who want to repatriate some of their dollar-linked earnings to the United Kingdom or Europe.
The dollar has risen even more against the European single currency over the past 12 months, to €0.86 from €0.73. That’s a rise of 20 per cent, dramatically boosting the value of money transferred to countries such as France, Germany, Italy and Spain.
The dollar has strengthened against the pound and euro largely because the US economy is growing strongly, especially when compared to the crisis-stricken euro zone.
The US Federal Reserve is even considering hiking interest rates, potentially giving the dollar another boost. Higher rates make it more attractive for overseas investors to save money in that currency, and the inflows could further boost the dollar.
It is a good time to be earning dollars, and many analysts expect the good times to continue.
Keith Wade, the chief economist & strategist at the asset managers Schroders, says the United States is leading the global upswing and could even be decoupling from the rest of the world. “The US recovery has been driven by strong domestic demand and we expect a continuation of a stronger dollar,” he says.
Marianne Gilmore, the commercial director at the foreign exchange specialist Moneycorp, says 21 global currencies are pegged to the dollar, with the dirham trading at a fixed rate of about Dh3.68.
“As the dollar strengthens, so does the dirham; we have seen UAE-based expatriates taking the opportunity to send money home to the UK and Europe,” she says.
A UK expat who transferred Dh100,000 home last summer would have received £15,848. Today, the same transfer gives them £18,158 – £2,310 more.
The difference is even more significant if you are buying euros, Ms Gilmore says. “Last May, Dh100,000 would have bought €19,493. Today, you would get €24,293. That is €4,800 more.”
These figures are calculated before transfer charges and other foreign exchange costs.
Ms Gilmore expects the dollar to remain strong against both the pound and euro this year.
The euro is particularly vulnerable as the European Central Bank (ECB) battles to stop the continent slipping deeper into deflation.
The ECB president Mario Draghi’s decision to launch a belated €1.1 trillion of quantitative easing and the victory of the anti-austerity party Syriza in this month’s Greek elections drove the single currency even lower against the dollar.
The tricky thing about currency transfers for expatriates is that a few percentage points on the rate can make a huge difference to the final sum you receive, but you never know where rates are likely to move next.
This means making tough calls about the future direction of foreign exchange movements - something even specialist traders cannot get right.
Transfer money today and you may kick yourself if the dollar strengthens. Delay and if the dollar weakens, you lose out.
One option is to arrange a firm order with a foreign exchange specialist, Ms Gilmore says. “This allows you to automatically transfer funds when the exchange rate hits your desired level. Bear in mind you are committed to transferring your money at this rate, and could miss out on a more advantageous rate down the line.”
Alternatively, set up a market watch order, and once the exchange rate hits a previously agreed level your foreign exchange specialist will ask if you are ready to transfer money.
Both of these assume that the market will continue to move in your favour, but sentiment can quickly change. “You have to work out what it will cost you if it moves in the opposite direction instead,” Ms Gilmore advises.
Mark Bodega, the director of the currency specialists HiFX, says British and European expats should seize the opportunity to transfer money at today’s rates rather than holding off.
Currency traders are betting that the Fed will increase interest rates soon, but speculation may have been overdone, he says. “Markets are running ahead of themselves and if the Fed doesn’t increase rates as expected, the greenback may soften. Now is a good time for both British and European expats to be sending money home.”
You can lock into today’s dollar rate by setting up a forward contract with a currency transfer service, fixing the exchange rate for up to two years.
Typically, you will pay a 10 per cent deposit now and the 90 per cent balance when you complete the transfer.
“It doesn’t matter if the exchange rate moves at all during the term of the contract – you will transfer money at the originally agreed rate,” says Mr Bodega.
Alternatively, set up a regular monthly currency transfer, sending an agreed amount for up to two years, based on today’s rate.
Mr Bodega says this option is particularly popular for UAE expats with a regular overseas commitment such as mortgage payments or pension transfers.
HIFX reports a 23 per cent rise in the number of UAE-based expats taking advantage of current rates, either via forward contracts or regular payments.
When arranging transfers, pay attention to both the exchange rate and any charges. Currency transfer services can be more flexible and cheaper than using a bank, so compare the options.
But whether you are sending money home or saving for the future, make the most of this strong dollar opportunity and do not assume it will last forever.
pf@thenational.ae
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