Gulf Stock Markets Edge Higher on Hopes of U.S. Fed Rate Cuts.August 25, 2025 (Reuters): Stock markets across the Gulf region showed cautious gains in early Monday trading, supported by rising optimism that the U.S. Federal Reserve may begin cutting interest rates as early as September. The momentum came after Fed Chair Jerome Powell’s dovish remarks last week, which lifted global market sentiment and created positive spillover effects in Middle Eastern financial exchanges.
Fed Chair Signals Softer Stance
Speaking on Friday, Jerome Powell highlighted that while inflation in the U.S. still poses some risks, the job market is beginning to weaken, and the balance of risks has shifted. His comments hinted at the possibility of a quarter-point rate cut in September, although he emphasized that no decision has yet been finalized.
For global investors, this cautious shift is a sign that the Fed is preparing to transition from its prolonged tightening cycle, which began in 2022, into a more accommodative stance to protect economic growth.
According to the CME FedWatch Tool, traders are now pricing in an 87% chance of a 25-basis-point cut at the upcoming September policy meeting. Markets also expect a total easing of around 48 basis points before the end of the year.
Why U.S. Policy Matters for the Gulf
The significance of Powell’s remarks extends beyond the United States. In the Gulf region, most national currencies—including those of Saudi Arabia, the United Arab Emirates, and Qatar—are pegged to the U.S. dollar. This peg provides stability but also means that regional central banks often follow the Fed’s lead on monetary policy.
Lower U.S. rates would ease pressure on Gulf central banks, potentially reducing the cost of borrowing and encouraging greater investment flows into the region’s equity and real estate markets.
Additionally, rate cuts in the U.S. tend to support oil prices by stimulating global demand, which is vital for Gulf economies heavily reliant on hydrocarbon revenues.
Market Performance Across the Gulf
Saudi Arabia
The Tadawul All Share Index (TASI), Saudi Arabia’s benchmark, edged up by 0.1%. Modest but positive movement was seen in major banks, with Al Rajhi Bank rising 0.1% and Banque Saudi Fransi climbing 1.3%. Investors remain cautiously optimistic, balancing expectations of Fed cuts with ongoing reforms in the Saudi economy under Vision 2030.
Saudi Arabia’s market has also been influenced by oil production strategies. Any change in U.S. monetary policy that boosts demand is expected to support crude prices, giving Saudi stocks additional momentum.
United Arab Emirates (UAE)
In the UAE, markets mirrored Saudi Arabia’s positive tone:
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Dubai’s main index (DFMGI) added 0.1%, lifted mainly by Emaar Properties, which advanced 1.4%. As one of Dubai’s blue-chip real estate developers, Emaar’s gains reflect continued investor confidence in the emirate’s property sector.
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In Abu Dhabi, the FTFADGI index climbed 0.2%, marking a steady uptrend supported by energy-linked optimism and strong foreign investor inflows.
Dubai’s stock market is particularly sensitive to real estate trends, while Abu Dhabi benefits more directly from oil price movements, making both exchanges responsive to the dual catalysts of Fed policy and global energy outlooks.
Qatar
The Qatar Stock Exchange (QSI index) also gained 0.2%, with Qatar National Bank (QNB)—the region’s largest lender—rising 0.9%. Qatar’s banking sector remains one of the strongest in the Gulf, and expectations of lower global interest rates could further enhance lending and investment activities.
Qatar’s economy, although smaller compared to Saudi Arabia and the UAE, benefits from its position as a leading liquefied natural gas (LNG) exporter, which makes global energy demand particularly important for its market direction.
Oil Prices Add Tailwind
Another factor contributing to Monday’s positive performance was the rise in oil prices. Crude gained ground after Ukraine escalated attacks on Russian energy infrastructure, sparking concerns about potential disruptions in Russian oil supply.
At the same time, the prospect of U.S. interest rate cuts improved expectations for global economic growth and, consequently, fuel demand. For Gulf economies, where oil revenues form the backbone of government budgets, higher prices not only boost stock markets but also strengthen fiscal stability.
Broader Implications for Investors
1. Stronger Regional Liquidity
A rate cut by the Fed could stimulate capital inflows into emerging markets, including the Gulf. With lower borrowing costs, investors may look toward Gulf equities and real estate as attractive opportunities for returns.
2. Banking Sector Boost
Lower rates often encourage lending activity, which could benefit Gulf banks. However, margins may tighten, making it crucial for lenders to focus on expanding their customer base and diversifying services.
3. Oil Dependency
While Fed cuts and higher oil prices support Gulf stocks, analysts caution that continued reliance on hydrocarbons leaves markets vulnerable to geopolitical tensions and global energy transitions. Efforts toward diversification, such as Saudi Arabia’s Vision 2030 and the UAE’s clean energy initiatives, will remain key to long-term stability.
Global Market Context
Outside the Gulf, global markets also reacted positively to Powell’s remarks. Wall Street ended last week on a strong note, while Asian and European markets opened higher on Monday. This international optimism is feeding into Gulf investor sentiment, underscoring the interconnectedness of global financial systems.
Analyst Perspectives
Market analysts suggest that while short-term optimism is justified, investors should prepare for volatility.
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Sharon Singleton, a market strategist, noted that Gulf markets will remain sensitive to both oil price fluctuations and the Fed’s policy direction.
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Others highlight that if inflation in the U.S. rebounds, the Fed could delay or scale back cuts, which would quickly shift market expectations.
For now, however, the prevailing narrative is one of cautious optimism—rate cuts are seen as likely, oil is stable, and Gulf equities are benefiting from both.
Conclusion
The Gulf’s stock markets began the week on a positive note, supported by a combination of dovish U.S. Fed signals and rising oil prices. While gains in Saudi Arabia, the UAE, and Qatar were modest, the underlying sentiment is increasingly optimistic.
If the Fed delivers a rate cut in September, Gulf markets could experience stronger inflows, increased lending activity, and improved investor confidence. Still, much depends on global energy markets and geopolitical stability, which remain crucial drivers for the region.
For now, investors across the Gulf are watching both Washington and the oil markets closely, recognizing that decisions taken in the U.S. and events unfolding in Europe will continue to shape the trajectory of their financial systems.
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