Dirham Strengthens Against US Dollar As Market Liquidity Improves

Agadir – The Moroccan dirham continued to strengthen against the US dollar during the week of January 12-16, with the USD/MAD exchange rate stabilizing at 9.22, marking a weekly decline of 0.18%, according to Attijari Global Research (AGR).

AGR attributes this movement primarily to a positive liquidity effect, estimated at -0.35%, which reflects improved conditions in Morocco’s interbank foreign exchange market. This means that foreign currency liquidity became more readily available, reducing pressure on the dirham.

This improvement was accompanied by a narrowing of interbank spreads by 34 basis points, bringing them down to -3.1%, a sign of smoother currency transactions and lower market stress.

According to Attijari Global Research, the dirham strengthened because Morocco’s interbank FX market had more available foreign currency and lower transaction frictions, reducing demand pressure on the US dollar.

AGR highlights important international monetary developments shaping currency dynamics. In the Eurozone, the European Central Bank (ECB) appears to be approaching the end of its aggressive monetary tightening cycle.

Morocco’s sustained economic growth

This shift reflects the raised interest in controlling and sustained economic growth, which reduces pressure on interest rates and limits volatility in euro-linked currency markets.

This means the ECB is slowing its interest rate hikes because inflation is under control and the economy is growing steadily. This makes the euro more stable. Since Morocco trades heavily with Europe, a stable euro helps the dirham stay strong and reduces exchange-rate volatility.

In contrast, the outlook in the United States remains more uncertain. According to AGR, ongoing domestic political tensions are creating uncertainty about the Federal Reserve’s upcoming monetary policy decisions. This uncertainty raises the likelihood of short-term fluctuations in the US dollar, which can in turn affect emerging market currencies such as the Moroccan dirham.

Attijari Global Research (AGR) recommends that participants in the currency market take a careful and strategic approach to managing risk. Specifically, AGR advises traders to hedge their foreign exchange positions for periods of one to three months.

Hedging is a way to protect against unexpected changes in exchange rates, which could occur due to shifts in US monetary policy or other economic and geopolitical uncertainties.

Essentially, this strategy helps traders limit potential losses from sudden market fluctuations while still allowing them to participate in normal trading activities.