Wednesday 5 December 2007

Incompetence at the Fed, or What? Dollar Could Come Under Even More Pressure if Gulf States Unpeg Their Currencies

TIMESONLINE: Foreign exchange markets are on alert this week for the embattled dollar to face a further, severe sell-off after key talks between the Middle East’s Gulf states that could lead to them scrapping their currencies’ pegs to the greenback.

Rulers of the six nations of the Gulf Cooperation Council (GCC) meet today and tomorrow in the Qatari capital of Doha amid significant pressures to sever their currency ties to the falling dollar, which is fuelling record inflation in their countries.

Officially, the GCC states have insisted that the key currency issue is not on the agenda for the rulers’ summit talks. However, there is intense speculation that mounting economic and social strains inflicted by the currency pegs could see them scrapped, or the Gulf currencies revalued, either at the meetings or within weeks of them.

Any move by five of the six GCC countries to follow a lead set by Kuwait in May and abandon their long-standing dollar pegs would add to already severe stress on the American currency, whose overall value on its broad trade-weighted index has plunged by nearly 12 per cent over the past two years, raising inflationary anxieties for the United States. Dollar faces new sell-off if Gulf states end greenback pegs >>> By Gary Duncan

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