DUBAI, 29 November 2007 — The United Arab Emirates dirham surged to a 17-year high, leading a rally in regional currencies as investor piled pressure on Gulf Arab dollar pegs, encouraged by a report that a revaluation could come as early next week.
Kuwait, the only Gulf Arab oil producer that tracks a currency basket, allowed two dinar depreciations in one day yesterday, the first time it has done so since the central bank dropped the dollar peg on May 20. The bank usually sets the day’s reference rate at 0500 GMT.
The Saudi Arabian riyal hit a 21-year high and the Qatar riyal a five-year high on speculation that other central banks would follow Kuwait’s lead and unshackle their currencies from the tumbling dollar to contain inflation.
Currencies in the world’s biggest oil exporting region have been rallying since UAE Central Bank Governor Sultan Nasser Al-Suweidi called two weeks ago for Gulf central banks to switch from fixed pegs to a currency basket including the euro. The Dubai-based Arabian Business magazine threw fat on the fire yesterday saying a UAE revaluation of 3-5 percent could come as early the National Day holidays on Sunday and Monday. The holidays of Eid Al-Adha, which begin around Dec. 20, would be another option for a move, the magazine reported, citing sources close to the central bank.
“The plan is to make an announcement when the banks are closed — National Day is an option, and if not National Day then the Eid holidays later in December,” one of the sources said, according to the website of Arabian Business.
The report’s author, Anil Bhoyrul, told Reuters the source was not at the central bank.
A National Day revaluation is unlikely because it would coincide with a summit of Gulf Arab rulers in Qatar on Dec. 3 and 4, analysts said.
“It’s not the UAE’s style to shock the markets,” Mushtaq Khan, economist at Citigroup Global Markets.
“The amount the magazine is talking about is in the ballpark of what we are expecting. But I don’t think they will do it before the summit,” he said.
Suweidi has repeatedly said he would only act in concert with other Gulf states preparing for monetary union as 2010. He and other central banker say the final decision on a revaluation or scrapping dollar pegs would be made by Gulf Arab rulers.
“I don’t think anything will happen before the summit, where the parameters will be laid for either joint or individual action,” said Anthony Harris, British ambassador to the UAE for four years to 1998.
Still, bids on the dirham were as high as 3.6600 per dollar, the strongest according to Reuters data going back to 1990. The currency, which has been fixed at 3.6725 per dollar since 1997, is on track to make its biggest one-day gain in 17 years.