Stronger indication of a revaluation

Forward rates on Gulf Arab currencies strengthened today as investors renewed bets thats the U.S. recession will compel Gulf States to change their dollar pegs. As I have claimed before it is not a matter of if but when. The basis for the stronger assumptions is the further declination of the USD and an evident change in the 3 month, 1 year and 2 years outlook on the currencies. Just recently the dollar reached lifetime lows on all major currencies mainly due to expections that the Federal Reserve will continue to cut rates.

The main concern of gulf states, (except Kuwait)  is the near-record peaks of inflation caused by the USD pegs which are forcing the economies to cut rates to shadow the U.S. Federal Reserves actions even though the economies are booming at a 500% rise since 2002. The Saudi Arabian inflation data showed 7% in January the highest in 27 years. Also, Qatar recorded inflation as high as 13.74 in January (off of a record high experienced earlier in 2007.)

Although the Central Bankers of Saudi Arabia and UAE reiterated last week that a revaluation of their currencies will not occur the fears of rising inflation, economic instability, and speculators will infact break the Bankers decision soon.