The dollar-pegged dirham has been gaining steadily against the euro and South Asian currencies in the second half of 2011. The UAE currency has gained 18.61 per cent against the Indian rupee this year and 2.34 per cent euro.

In tandem with the dollar uptick, the dirham has gained 0.35 per cent against the British pound, 0.69 against the Australian dollar, 2.61 per cent against Swiss franc, and 4.03 against Japanese yen over the past few months.

With a predicted anemic growth for the global economy, analysts foresee the US dollar becoming a global safe haven, gaining strength from repeated waves of risk aversion triggered by potential events such as EU sovereign ratings downgrades, weak economic data, and ongoing credit market stresses in Europe.

Analysts point out that the dirham will directly benefit from the dollar surge, particularly in the wake of Arab Spring, with the UAE providing a safer investment haven for foreign investors and funds that are being diverted from regional flash-points, including Egypt, Libya and Syria.

Most economists predict that 2012 will most likely be a year of global stagnation as major economies enter into the most significant collective fiscal tightening period in decades. Politicians around the world have pledged to curb spending and 2012 will be the year to deliver. In the US, fiscal tightening will intensify with unemployment benefits and payroll taxes set to expire.

“We are not anticipating an outright collapse of the eurozone, but price falls are likely to be sharper and steeper than any rises. We also can’t exclude the possibility of a catastrophic decline in the stock market along the lines of the 2008 market meltdown,” said Brian Dolan, chief currency strategist, FOREX.com, the retail division of GAIN Capital, a global provider of online trading services.

“Investors seeking relative stability will look to the dollar. Therefore, we expect the dollar to gather momentum in the first quarter,” he explained.

Kathy Lien, director of currency research at FX360, said 2012 should be a year where the dollar performs extremely well.

“Like 2011, the strength of the dollar will not come from strength in the US economy, but rather from more deleveraging and uncertainty. Even though the US economy is expected to grow, for most people, it will still feel like stagnation that borders on recessionary conditions at times.

“If President Obama fails to get the payroll tax and unemployment benefits extended, growth in the US will be even weaker and his chance of re-election slimmer. Political uncertainty is not usually positive for a country’s currency, but in the case of the US dollar, the uncertainty could drive more investors into the safety of US Treasuries, keeping the greenback supported in the process.”

Alan Bush, Archer Financial Services, said much of the recent strength in the greenback could be linked to a flight to quality move, in light of growing evidence that growth in the global economy is slowing. “However, compared to the fundamentals of Europe and Asia, the fundamentals surrounding the US are more favourable.”

Analysts point out that the rally in the greenback in the second half of 2011 had nothing to do with the strength of the US economy and everything to do with the safety of US Treasuries. “Even after the US lost its AAA rating, investors continued to buy dollars, which is a testament to the liquidity of the US financial markets and the perceived safety of US Treasuries. The safe-haven status of the greenback will be a characteristic that continues to determine the direction of the dollar in 2012,” one analyst point out.

On the outlook for 2012, analysts believe along with the election year in the U. there may also be leadership changes in France, Russia, and Venezuela. The political change in some parts of the world will be more seamless than others; Putin is set to replace Medvedev as the president of Russia, Nicolas Sarkozy will be fighting to retain the French presidency, and elections in October could mean the end of Hugo Chavez’s regime. The most important and highest profile election will be in the United States where President Obama will be fighting to secure a second term, they point out.

Analysts said while the US economy has recently shown relatively modest growth, there are fears that the European economy could fare worse with the distinct possibility of recession. Many analysts believe the recently agreed to euro area financial rescue measures might be coming too late to prevent a second recession in the eurozone in four years.