Saudi Arabia’s riyal, which has been fixed at 3.75 to the dollar since 1986, hit as strong at 3.74 to the dollar. Investors were betting the United Arab Emirates dirham would appreciate by 2.8% in one year and 4.1% in two years, according to forward rates.
Kuwait let the dinar appreciate against the dollar for a second time, taking gains since the country dropped its dollar peg in May to more than 6% for the first time.
Inflation is becoming a growing concern across the world’s biggest oil-exporting region, where price rises hit a quarter century peak of 7% in Saudi Arabia and 13.74% in Qatar in the fourth quarter, just off a record.
Costs of Gulf imports denominated in euros have risen on average more than 20% this year, said Elyas al-Gaseer, Middle East head of capital markets at Calyon.
They have come up with a lot of solutions but it seems that all of them won’t stop inflation unless they do something about the currencies, he said.
Oil prices near $ 100 per barrel would also make it easier for Gulf governments to revalue, adding to speculation they could change policy soon, he said.
Dollar pegs restrict central banks ability to fight inflation by forcing them to shadow US monetary policy at a time when the Fed is cutting rates in an attempt to ward off recession.
By contrast, Gulf economies are surging on a near five-fold jump in oil prices since 2002.
Gulf Arab inflation would fall significantly were the oil producers to drop their dollar pegs, former US Federal Reserve Chairman Alan Greenspan said on Monday.
Some Gulf policymakers have voiced concerns about the status quo. Qatar is studying revaluing its riyal among options to fight inflation, Qatari Prime Minister HE Sheikh Hamad bin Jassim bin Jabor al-Thani said on Saturday.
The exchange rate contributes to about 40% of inflation in Qatar, where the currency is 30% undervalued, Sheikh Hamad said.
Investors were betting on a 2.9% appreciation of the Qatar riyal in nine months, forward rates showed.
Kuwait’s central bank has not revealed the composition of its basket, saying only it is largely weighted in dollars. Inflation in the world’s seventh-largest oil exporter hit a fresh record of 7.3% in October, the latest available figure.
Kuwait’s currency basket is under particular pressure as its effectiveness in combating imported inflation is scrutinised as prices continue to rise, said John Sfakianakis, chief economist at SABB bank, HSBC’s Saudi affiliate.
The UAE will not de-peg its currency from the flagging US dollar, the central bank governor was quoted as saying in remarks published yesterday.
His comments came after Greenspan advised Gulf Arab to float their currencies as a means to curb inflation.
The dollar is on its way to strengthening, and it is not logical to speak now of de-pegging the dirham from the dollar, Sultan bin Nasser al-Suwaidi told the Abu Dhabi-based daily Al-Ittihad.
The peg greatly benefited the local economy, and helped achieve good rates of growth in the industrial and tourism sectors as well as attract foreign investments, he said.
The dollar fell to a record low against the euro for a second straight day yesterday as Federal Reserve Chairman Ben Bernanke did nothing in testimony to the US Senate to dispel expectations that US interest rates are headed lower.
The dollar weakened broadly and the key index which measures it against a basket of currencies plunged to a record low for the third straight day.
Midway through the New York session, the euro was up 0.5% at $ 1.5202, near the session high of $ 1.5206.
The dollar index, which tracks its performance against six major currencies, was down 0.6% at 73.733, just above a record low of 73.723.
Meanwhile, gold raced higher to an historic high above $ 965 an ounce yesterday as the dollar’s slump to record lows and strong oil prices boosted investor buying, analysts said.
Silver hit a 27-year peak above $ 19.75 an ounce, palladium hit a 6-1/2-year high and platinum bounced back after falling more than 2% to a one-week low.
Spot gold rose as high as $ 966.70 an ounce and was at $ 966.00/966.90 at 1614 GMT, against $ 957.50/958.30 late in New York on Wednesday.
Gold is pretty much tracking the euro/dollar moves and funds and investors will keep buying the metal until it gets to $ 1,000 an ounce, said David Thurtell, analyst at BNP Paribas.
A weaker dollar makes gold cheaper for holders of other currencies and often lifts bullion demand. The metal is also generally seen as a hedge against oil-led inflation.
In other metals, platinum was last at $ 2,135/2,140 an ounce after falling as low as $ 2,084, against $ 2,130/2,140 in New York. It hit a record of $ 2,192 on February 22 as persistent power supply problems disrupted mining in South Africa, the world’s top producer.
Silver rose as high as $ 19.77 an ounce and was last at $ 19.71/19.76, versus $ 19.22/19.27 on Wednesday. Palladium hit a high of $ 560/564 an ounce, up from $ 550/555.
