Analysis
Retail

Dollar rebound offers little relief to UAE retailers

May 13, 2025, 7:49 AM

The textile souk in Dubai. Many retailers have been relying on aggressive discounting to attract customers

Businesses braced for rising costs
Dirham hostage to US fortune
Customers will ‘end up out of pocket’

The dollar has jumped in the past 24 hours but it is still trading at around an eight-month low, at least against the euro.

For Gulf oil producers, most of whose currencies are pegged to the US currency, the weaker dollar poses a challenge.

“The dollar has been part of the collateral damage as investors trimmed their US exposure since the Liberation Day tariff saga” on April 2, says Scott Livermore, chief economist at Oxford Economics Middle East and an AGBI columnist.

On Tuesday morning the US Dollar Index was at 101.56, a decline of about 5.7 percent from its peak of 107.66 at the end of February.

“Further volatility and uncertainty” is likely, especially as President Donald Trump’s 90-day pause on new tariffs nears its end in July, Livermore told AGBI.

In the UAE, whose dirham is pegged to the dollar, the effect is already being felt in import costs.

According to S&P Global’s latest Purchasing Managers Index, input costs in the UAE’s non-oil private sector rose in April – the month the dollar’s decline accelerated.

This prompted many companies to pass those increases on to consumers as higher prices. There may be more to come.

“CEOs we speak to are bracing for input costs to climb as much as 20 percent,” says Lamia Habanjar, commercial director at international payments company Ebury.

“That said, any immediate price hikes are likely to be opportunistic, as goods currently in transit remain exempt from the new tariffs for now.”

With profit margins already thin, many retailers in the UAE have relied on aggressive discounting to attract consumers in a competitive environment shaped by high living costs and shifting demand.

“Navigating this environment will require a careful balancing act,” says Máire Morris, founder and CEO of Morris Global Consulting, who advises retailers in the region. “But ultimately, it’s the customer who will end up out of pocket.”

That sentiment is echoed in the UAE food and beverage industry.

“Restaurants will be paying more for the same products, placing further strain in an already tight operating environment,” says Tapan Vaidya, treasurer of the UAE Restaurants Group.

For others, the outlook may be even starker. “It’s getting uglier and uglier,” says Naim Madaad, founder of Gates Hospitality in Dubai.

“The price of raw materials is going to go up, which means housing will go up,” he says.

“It’s inflation at every level. It’s changing by the hour – but this isn’t short term. Prices are going to rise. The question is, how much can you pass on and how much can you afford to absorb?”