Bets on revaluation grow on Greenspan remarks

Forwards show investors betting on 3% appreciation in UAE dirham in a year.

UAE dirham forwards widened on Wednesday after former US Federal Reserve chairman Alan Greenspan commented in favour of currency reform, renewing bets on Gulf Arab currency revaluations.

Forwards showed investors betting on a 3% appreciation in the dirham in a year and 4.6% in two years at 1120 GMT.

Speaking at conferences in Saudi Arabia and the UAE on Monday, Greenspan said near-record Gulf Arab inflation would fall "significantly" were the oil producers to drop their dollar pegs and float their currencies freely.

"When Alan Greenspan talks, people listen to him," said Jason Goff, head of group treasury and market sales at Emirates Bank International.

"A good part of speculation on Gulf currencies is outside of the Gulf. What Greenspan says carries weight in the market," he said.

Dollar pegs restrict the Gulf's ability to fight inflation by forcing them to shadow US monetary policy at a time when the Fed is cutting rates to ward off recession. The dollar slumped to a record low against the euro on Wednesday.

Gulf economies, on the other hand, are surging on a near five-fold rise in oil prices since 2002.

The Qatari riyal is about 30% undervalued as a result of dollar weakness, the Gulf state's prime minister told newswire Reuters on Saturday.

Exchange rate weakness was contributing to about 40% inflation that hit 13.74% in the fourth quarter, just off a record, Sheikh Hamad bin Jassim bin Jabr Al-Thani said.

Qatar is studying revaluing its riyal among options to combat inflation, Sheikh Hamad said.

Qatari riyal forwards showed investors expecting a 2.6% appreciation in nine months while bets on the Saudi riyal were for a gain of 1.9% in a year at 1125 GMT.

Both Qatar and the UAE would likely sever their links to the US dollar this year and track currency baskets as Kuwait did last May, Deutsche Bank said last month. (Reuters)

Join the Discussion

Disclaimer:The view expressed here by our readers are not necessarily shared by Arabian Business, its employees, sponsors or its advertisers.

NOTE: Comments posted on may be printed in the magazine Arabian Business

Please post responsibly. Commenter Rules

  • No comments yet, be the first!

All comments are subject to approval before appearing

Further reading

Features & Analysis
A humbler Qatar still wants to punch above its weight

A humbler Qatar still wants to punch above its weight

Qatar has acquired more than $335bn worth of assets around the...

Saudi Arabia spends money to make money

Saudi Arabia spends money to make money

Tour of Asia by Saudi Arabia's King Salman advances drive to...

Where is Bahrain headed?

Where is Bahrain headed?

The kingdom has identified jewels in its accelerating non-oil...

Most Discussed