maranelloman

Looks like the US economy is sliding and the arab states are planning to stop pegging with the dollar.

http://www.telegraph.co.uk/money/mai...cnsaudi119.xml

oktoberon

Saudi & UAE have stated they will not float the currency. UAE has just revised its base rate.

Nothing will happen for the next 6 months.....

The Dean

Dunno Okt......... earlier today when I was in the office, spot SAR was almost down at 3.74...... not sure where it is now........

I've got some more stuff to post on this topic..... but it will have to be tomorrow.

Off to listen to the Welsh national anthem:

Wales, Wales,
Full of sheepshaggers is Wales.........

oktoberon

speak later shag...

beebee

i have never shagged a sheep in my life

IndieG

Well, I hope they shift the peg and revalue the AED

With inflation so high - what do they mean 9%, even if you exclude rent, all other commodities - wheat, sugar, bread, pulses, veggies, fruits have gone up 60-100% in 2 years

maranelloman

According to the article Kuwait have already de-pegged. It seems based on what Saudi said, they seem likely to do the same. If they do the UAE will follow suit. Personally I think the US economy is due for a major correction, and depegging will mean that Saudi will be able to be immune to a large part of that correction. But what is most interesting is the Saudi confidence level in their own currency. Interesting times and hopefully my Riyals are gonna be worth a few more pounds in years to come.

IndieG

Very unlikely they'd remove the peg completely, shift maybe. Revalue, hopefully.

Cham128

maybe they could peg it to the pound in the UAE... if the dollar keep falling and they do nothing there will be no point me moving out there!

maranelloman

Euro is the way to go. Very strong currency at the moment. But think there is enough momentum in the middle east now to stop pegging.

Dago

Good point. In Kuwait the basket of currencies that they swithced to from a dollar peg has been kept secret (well at least from the newspapers and from me) but it is still trending with the dollar. 'They' say that the basket has 60 % USD content.

The Dean

The issue is interest arbitrage........ no, don't switch off.........

When two currencies are pegged to each other at a fixed exchange rate, they must have similar, if not identical, interest rates, to prevent speculators borrowing the currency with the lower rate, converting it to the other currency, and investing at that currency's higher rate.

If they know they can convert back again at maturity at the original exchange rate, they will be able to achieve a guaranteed profit based on the interest rate differential.

With a booming economy here (unlike the US), that's a tough one....... a rate cut when the economy is growing strongly is NOT what the doctor has prescribed.........

You can wake up now........

The point is that GCC monetary authorities must either (a) adjust the peg or, better still, let if float freely, or (b) lower rates to US-comparable levels (to prevent the sort of speculation I mentioned abvove).

The complication is that all the GCC countries (except Kuwait) have informally agreed not to play around with the fixed pegs until they can achieve monetary union. The target date of 2010 looks optimistic, but that only complicates things further..........