Kuwait Times

Published Date: December 30, 2007
By Rania El Gamal, Staff writer

KUWAIT: The climbing exchange rate of the British sterling to the Kuwaiti dinar makes British expatriates more optimistic about their future earnings following recent UK recession forecasts and a grim outlook for the pound. For British expatriates living in Kuwait, the better exchange rate of the sterling pound in recent weeks means more money to send back home. British expats are also hopeful for an even better sterling pound exchange rate to the Kuwaiti dinar in the coming new year.

The exchange rate is much better now than six months ago. For example just last month, one dinar bought 1.72 pound, now it is between 1.81 and 1.82. I am very unhappy that I have exchanged my money two months ago when the exchange rate was 1.74. Because, I've lost more than 400 pounds," said John, a British expat living in Kuwait. "I now follow the latest economic news to see how the sterling is doing and how the dollar is doing because the Kuwaiti dinar is still linked largely to the dollar's (performanc
e). I hope for a better exchange rate for the pound next year. I am waiting to get a better rate of 1.82 or 1.83 by Monday before the holidays to exchange and transfer a couple of thousand dinars I have," he added.

Kuwait dropped its dollar peg in May, and shifted to a basket of currencies. Though Kuwait didn't disclose the composition of the new basket, it is believed to be heavily weighted towards the US dollar (about 70 percent), while other major currencies are with relatively smaller percentage of composition. "The exchange rate now is better; it's not as good as it has been but it is getting better," said 20-something Terry, a British national. He added that about three years ago, is was almost 2 pounds to the
KD, it was 1.72 last month but now it is 1.82. "It's on the climb again and I expect it to get better by the new year," he noted.

Usually such a small difference in the exchange rate does not mean a significant loss when transferring a couple of hundred dinars back home, but for thousands of dinars, one could lose hundreds of sterling pounds. "I usually wait until the exchange rate is better to transfer money back home, because when you transfer a couple of thousand dinars, you lose a couple of hundred pounds. I don't have a mortgage and the money will be sitting in a bank in the UK anyway, so I wait for a good rate," said Terry.

For expats who have a mortgage in the UK or have to send money back home every month, it is "a hit or miss," says Terry.

I have British friends who have to transfer money every month irrespective of the exchange rate. They lose money if the rate is not good but they just have to do it because they have mortgages back home," said John. But it is not only the British expatriates who forecast a better earning or exchange rate for their savings in 2008 because they are away from home. Top bankers see the sterling facing a "perfect storm" next year. Sterling reached a quarter-century high of $2.11 in October on dollar woes, but
has since dropped back to under $2.02.

Risks such as housing bubble bursts, interest rate tumbles, and dwindling city revenues following the credit crunch expose the grim state of Britain's overstretched trade accounts, says HSBC Bank. In its year-end report published last week, the HSBC predicted the pound will plunge to $1.76 against the dollar over the next 15 months. "Sterling outlook for 2008 is about to take a significant turn for the worse. Trade data shows that the UK is becoming increasingly uncompetitive in the international arena," s
aid David Bloom, the bank's chief currency strategist.

Investment Bank Dresdner Kleinwort has also put the chances of a UK recession at 50-50 in the next year. The bank's chief European economist David Owen said, "We are looking at a toxic combination of headwinds facing the economy. The chances of a recession in the UK next year are close to 50pc - as they are in the US." Unfortunately, such bad news for the UK economy are good news for expats living in Kuwait and other countries in the Gulf that link their currencies to a weakening dollar. "This is good news
for us here, because it would mean more money, but not for the people back home," said John.