Revaluation talk drives up UAE, Kuwait currencies
(Reuters)
20 February 2007
DUBAI — The currencies of Kuwait and the United Arab Emirates have firmed in recent days as investors bet the two countries will act independently of their Gulf peers to revalue their currencies at an April meeting.
Speculation about a currency revaluation has been growing since UAE central bank governor Sultan Nasser Al Suweidi said in January that Gulf Arab central bank governors could decide to keep or change currency pegs at the meeting in Riyadh.
The UAE dirham touched an 11-month high of 3.6700 per dollar late last week and was trading at around 3.6718 per dollar, above its official peg of 3.672, yesterday.
The Kuwaiti dinar touched a 10-week high late last week at 0.28860 per dollar, but eased to 0.28916, back around its peg at 0.28914 per dollar, yesterday.
"The dirham and the dinar have moved a lot for a pegged currency," said Rohit Kedia, manager for money markets at Emirates Bank in Dubai. "There are market rumours that U.S. hedge funds are betting on revaluations."
Gulf currencies climbed in January after Suweidi said Gulf oil exporters could agree to peg to another currency or a currency basket. Kuwait's central bank governor has been quoted as saying Kuwait may change the dinar's trading band against a weakening dollar to guard against the impact of rising costs. The comments seemed to highlight a divide as regional powerhouse Saudi Arabia, where inflation is not a major problem, said it had no plans to revalue or abandon its dollar peg. Kuwait allowed its dinar to appreciate one per cent against the dollar within its 3.5 per cent trading band last May. For the UAE, revaluation may make sense to combat inflation, which Standard Chartered Bank estimated at 13.8 per cent in 2006, the highest in the Gulf.
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