Gulf currency to cut costs

A leading international rating agency, Fitch, has said the Gulf common currency, expected in 2010, will help reduce prices of essential commodities in the Gulf Cooperation Council states. The use of a common GCC Cooperation Council for the Arab States of the Gulf currency will reduce the member states' cost of global trade transactions to a great extent, the Fitch said in a report, adding that companies and consumers would benefit as a result of fall in prices.

Charles Seville, an associate director of Fitch who prepared the report, said the common currency would give GCC Cooperation Council for the Arab States of the Gulf countries greater flexibility in dealing with external pressure.

"When the prices of oil go up, the value of the currency will also go up," Al-Eqtisadiah business daily quoted him as saying. Seville also observed that GCC Cooperation Council for the Arab States of the Gulf countries with a common religion and heritage are in a good position to establish a currency union that will boost their economies. "A flexible currency will help the GCC Cooperation Council for the Arab States of the Gulf adopt monetary policies that are suitable to the region's situation," he said.

The report came ahead of a meeting of the governors of GCC Cooperation Council for the Arab States of the Gulf central banks, to be held in Doha tomorrow.
Secretary-General Abdul Rahman Al-Attiyah, will discuss the group's basic monetary law. GCC Cooperation Council for the Arab States of the Gulf leaders are likely to endorse the law during their upcoming summit in Muscat.

GCC Cooperation Council for the Arab States of the Gulf countries have decided to introduce a common Gulf currency at the beginning of 2010. All member countries except Oman have agreed to establish the currency union as scheduled but Oman wants more time. The currency union will reduce inflation rates in GCC Cooperation Council for the Arab States of the Gulf countries.

Research will rise further in the absence of effective policy tools to prevent it. Inflation is already in double digits in Oman, Qatar and the UAE and close to 10 percent in Kuwait and Saudi Arabia, leaving only Bahrain with a modest inflation rate of around five percent.

"The Gulf inflation is at its highest in over 30 years. "As in the seventies, some of the region's increased oil wealth is feeding through into higher prices, and with policy tools limited, inflation will rise further before it starts to fall," said Richard Fox, head of Middle East and Africa Sovereign Ratings.

Inflation in Saudi Arabia and Oman has been more affected by rising food prices. With at least some commodity prices now moderating and housing costs less of a factor, inflation may abate later this year, one analyst said. By contrast, in Qatar and UAE, lower inflation must await improved property supply.

Deciding on exchange rates for the new currency when it is introduced could be a major sticking point if inflation in the region remains as high and erratic as it has been in recent months. Valuing a new currency against existing currencies is difficult if the relative values of the existing currencies are constantly in flux.

Fitch considers the upsurge in inflation the biggest threat to the single currency project timetable. Seville hoped that improved real estate supply, moderation in food prices and more restrained government spending would start to reduce inflation later this year.

/Arab News /

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Oil rises to record on weakening dollar

Crude oil surged more than $10 a barrel to a record as the dollar weakened after the U.S. unemployment rate grew the most in two decades and Morgan Stanley said prices may reach $150 within a month.

Oil may ``spike'' because ``Asia is taking an unprecedented share'' of Middle East exports, Morgan Stanley analyst Ole Slorer wrote. The dollar weakened against the euro after unemployment rose to 5.5 percent, signaling the Federal Reserve may be reluctant to increase interest rates. Oil also rose after an Israeli minister said an attack on Iran may be necessary.

Oil is ``being used as a hedge by speculative buyers for the weakened dollar,'' said Gary Adams, vice chairman of oil and gas consulting at Deloitte & Touche LLP in Houston. ``We are seeing that the price will continue to go up as investors look for alternatives.''

Crude oil for July delivery rose $10.75, or 8.4 percent, to settle at $138.54 a barrel at 2:48 p.m. on the New York Mercantile Exchange. Today's increase was the biggest gain in dollar terms ever and the largest on a percentage basis since June 1996. Oil rose $11.33 to an all-time high $139.12 a barrel during trading.

Today's rise was bigger than the entire price of oil on Dec. 10, 1998, when crude traded at $10.72 a barrel. Oil has more than doubled in the past year.

``This is all just a plain old stampede,'' Tim Evans, an energy analyst for Citi Futures Perspective in New York, said in an e-mail. ``The sellers have basically pulled their orders so it doesn't take much incremental buying to push prices higher.''

Record Gasoline

Gasoline for July delivery rose 21.35 cents, or 6.4 percent, to $3.548 a gallon in New York after reaching a record $3.565. Regular gasoline at the pump fell 0.3 cent to an average $3.986 a gallon after touching a record yesterday, AAA, the biggest U.S. motoring organization, said today on its Web site.

Shaul Mofaz, Israel's transportation minister and a contender for the post of prime minister, told the Yediot Ahronot daily newspaper that Israel will have to attack Iran if it doesn't abandon its nuclear-development program.

``The Iranian risk premium, which had left the market for some time, is likely to return and hover over the market in the next few weeks,'' said Antoine Halff, head of energy research at Newedge USA LLC in New York. ``The knee-jerk reaction to the comments by Mofaz will wear off quickly because Israel would not broadcast its intention in this fashion.''

Brent crude oil for July settlement rose $10.15, or 8 percent, to $137.69 a barrel on London's ICE Futures Europe exchange, a record close, after reaching an all-time high of $138.12 a barrel.

With Asia taking an ``unprecedented'' share of Middle East oil, U.S. benchmark West Texas Intermediate crude oil may reach $150 a barrel by July 4, Morgan Stanley's Slorer said in his report.

Oil Forecast

BNP Paribas SA, France's biggest bank, boosted its 2008 oil outlook by 19 percent to $124 on climbing Asian demand for diesel fuel and kerosene. Last month, Goldman Sachs Group Inc. raised its New York crude-oil price forecast for the second half of this year by 32 percent.

The market ``is underpinned by demand, which is totally different than 1973 and 1979'' when supply cuts caused prices to surge, said Ray Carbone, president of Paramount Options Inc. in New York. Oil's rise is linked to ``supply and demand. Nobody wants to admit it. Too bad.''

A decline in oil prices earlier in the week came after Congress held hearings on possible energy price manipulation, and billionaire investor George Soros said an oil price ``bubble'' is working with fundamentals in the market that may lead to a recession.

Prices rose yesterday after European Central Bank President Jean-Claude Trichet's comment that the bank may raise interest rates next month caused the dollar to fall against the euro.

Weaker Dollar

Oil has surged to records this year partly because investors have turned to commodities as a hedge against the falling dollar.

The dollar weakened further today after the Labor Department said the U.S. jobless rate increased by half a point to 5.5 percent, the biggest increase since 1986 and higher than every forecast in a Bloomberg News survey.

Rising unemployment ``is going to lead to a drop in the dollar and higher commodity prices,'' said Phil Flynn, a commodities trader for Chicago-based Alaron Trading. The Fed will be ``less aggressive in raising interest rates.''

The dollar decreased 1 percent to $1.575 per euro at 1:52 p.m. in New York, from $1.5593 yesterday.

Chevron in Nigeria

Workers at Chevron Corp. in Nigeria may strike, a union official said. Chevron has yet to respond to worker demands that the head of the Nigerian unit be replaced, said Ethelbert Uka, treasurer of the Petroleum and Natural Gas Senior Staff Association of Nigeria. Daily production of about 450,000 barrels of crude oil may be threatened, the Lagos-based newspaper Vanguard reported earlier.

A Chevron spokesman said the company is trying to open negotiations with the workers.

Nymex trading in crude oil, heating oil and gasoline on the Globex electronic system was ``briefly halted'' and resumed around 1:15 p.m. New York time because heating oil reached its limit move for the session, said Brenda Guzman, a spokeswoman for the exchange.

The limits, which govern maximum price moves, up or down, were doubled for the remainder of the electronic session, she said. Crude oil's limit rose to $20, natural gas to $6 and heating oil and gasoline rose to 50 cents.

/Bloomberg/

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Central Bank issues new modified banknote worth AED200

The Central Bank announced in a statement Saturday it has issued a modified banknote worth AED200 with the latest technical specifications and security measures.

It added that the new banknote will be circulated alongside current banknotes from Tuesday, May 27, 2008, indicating that the new AED200 banknote will be advertised in the local press.

/WAM/

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Experts to bring the Euro perspective to the Gulf

Two senior figures involved in the European Union's currency union are to discuss what lessons can be applied in the move towards a GCC single currency.

Erwin Nierop, a lawyer by training, was involved in the establishment of three international financial institutions: the European Bank for Reconstruction and Development, the European Monetary Institute and the European Central Bank.

Most recently, he was head project manager for technical assistance to the Gulf Cooperation Council, helping to prepare a blueprint for Gulf monetary union.

Russell Krueger, a senior official at the International Monetary Fund (IMF), has extensive experience working on the statistical preparations of the European Monetary Union and has carried out research on union-building and regional financial integration projects in the Gulf, Africa and East Asia. He is currently on a one-year sabbatical leave for research on technical preparations for currency unions, with an emphasis on the lessons other regions can take from the European experience.

Both Nierop and Krueger will be speaking at the GCC Currency Forum 08, to be held on June 15 at the Monarch Hotel in Dubai.

Dr Armen Papazian, senior vice president responsible for development and innovation at Dubai International Financial Exchange (DIFX), will be delivering the keynote address.

The event is organised by ITP Events and Conferences, in association with Arabian Banking & Finance magazine. Gulf Custody Company is associate sponsor and Mayfair Pacific Asset Management is the exhibitor partner.

The event is also supported by Gulf Research Centre, the Emirates Securities and Commodities Assocation and the UAE Financial Markets Association. Source

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Emirates Post’s ‘Express Money Order’ offers instant money transfer

Simultaneous launch ceremonies in Dubai and Chennai herald a new partnership between Emirates Post and India Post

Express Money Order (EMO), a new remittance service to India was officially launched with simultaneous functions

held in UAE and India to herald a low-cost instant money transfer service for just Dh. 11 per transaction, following a new partnership between Emirates Post and India Post.

At Emirates Post’s Deira Main Post Office, Mr. Ibrahim Bin Karam, CEO of Emirates Post, and senior officials joined the first UAE customer, Mr. Lakshmi Narasimhan, as he transferred money to Chennai Post Office. Lakshmi was given a secret code which he SMS-ed to his wife.

Mr. Lakshmi’s wife then collected the amount instantly, after quoting the code, in the presence of top Indian officials led by Minister of Communications and Information Technology, Mr. A. Raja and Mr. I.M.G. Khan, Director General of India Post.

“Our Express Money Order provides a safe low-cost option for people sending regular remittances to India through the postal network,” said Mr. Bin Karam. “We have tied up with India Post because it has the world’s largest network of post offices, penetrating every corner of the country. More importantly, the system is powered by UPU’s secure International Financial System (IFS), ensuring global standards. Our customers can expect real value for money.”

Customers can do instant transfer from any Emirates Post post-office and the money will be delivered to any of the 97 head post-offices and 2,400 sub-post offices currently linked to the EMO service. This network will be increased gradually to cover most areas of India.

Customers sending money to India through Emirates Post offices will have two options. They can either ask the addressee to collect the money from the selected post office in India or have the money delivered to the addressee’s residence (for an extra fee of Dh. 4). On the other hand, Money Orders sent from India through India Post will be payable at post offices in the UAE.

Under the system, a single Money Order issued by Emirates Post for payment in India shall not exceed US$ 2,500 (Dh 9,100) or its equivalent. A maximum of 12 Money Orders addressed to one beneficiary will be allowed in a calendar year. Amounts of less than 50,000 Indian Rupees will be paid in cash, and those exceeding 50,000 Indian Rupees will be payable by cheque.

“The new facility represents a boon to Indians in the UAE, as India Post will guarantee quick delivery of the money to every remote corner of India,” said Mr. Karam. “We have fixed affordable charges to enable thousands of UAE residents to avail of the secure International Express Money Order endorsed by the UPU.”

The International Express Money Orders will be transmitted between the two parties using the IFS/STEFI secure network of the Universal Postal Union (UPU), through a server in Berne, Switzerland.

In India, the electronic Money Orders payable at post office counters will be delivered instantly at post offices. In the case of Money Orders payable at addressee’s destination, the delivery will be within two days through the IFS network. Outside the IFS network, the delivery will take place within five days. If the money is sent from India to the UAE, the amount can be payable instantly at Emirates Post offices.

The IFS-based International Express Money Order is a reliable, adaptable and easy-to-use tool and can be installed in the remotest areas of the world. The UPU anticipates that financial services could generate up to 50 per cent of a country’s postal revenue, and by promoting IFS, the dominance of big players could be reduced, thus offering customers, especially migrant workers, a cost-effective system of electronic money transfer.

India has a network of 155,333 post offices, the largest in the world, covering the remotest corners of the country.

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Dubai Chamber urges UAE to revalue dirham by 15pc

Despite the government's categorical statement against currency revaluation, an official of the Dubai Chamber of Commerce and Industry has insisted that the UAE revalue the dirham by 15 per cent and move to a currency basket within two years.

Dr Eisa Abdelgalil, a senior economist at Dubai Chamber's Data Management and Research Department, cited the need for the government to tame inflation and the effects of a weak US dollar, to which the dirham is pegged at 3.67.

"According to our calculations, based on the drop of the dollar against the other major currencies, the dirham should be revalued by 15 per cent," he said.

He added that the UAE must act quickly to abandon the dollar-peg and move to a basket of currencies in a year before the deadline for the six Gulf Co-operation Council, or GCC, economies to create a single currency by 2010.

UAE Central Bank Governor Sultan bin Nasser Al Suwaidi put to rest last month all speculations, saying there was no plan to either revalue the dirham or abandon the dollar peg.

Abdelgalil addressed The Economic Seminar 2008 yesterday in which speakers highlighted the traders' expectations for this year, the need for businesses to embrace corporate social responsibility (CSR) and the factors driving inflation. Shaikh Abdullah bin Saud Al Thani, Governor of the Central Bank of Qatar, which holds the revolving chair of the GCC, said early this month that pressure on the Gulf economies via low interest rates and a weakening greenback have piled up.

Except for Kuwait, which abandoned the dollar in May, the GCC economies of Saudi Arabia, Bahrain, the UAE, Oman and Qatar have tracked the US interest rates cuts - done to ward off recession - despite having a five-fold growth in the last six years.

Abdelgalil said inflation in the UAE rose nine per cent in 2006 from two per cent in 2001, citing official data from the Ministry of Economy.

He added that the drivers of inflation include high rental fees, increasing wages, the influx of money supply, rising imports prices and currency depreciation.

Estimates by the NBAD put the country's inflation at a 19-year record of 9.3 per cent in 2006 and probably climbed to over 10.9 per cent last year. Other estimates have pointed out a 27-year high inflation of 8.7 per cent in Saudi Arabia, an 18-year record of 11.1 per cent in Oman and 13.7 in Qatar. Source

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No plan 'for the time being' to revaluate Dirham against US Dollar

Putting all speculations to rest, UAE Central Bank Governor HE Sultan bin Nasser Al Suweidi said on Thursday that there is no plan 'for the time being' to revaluate Dirham against US Dollar.
He also denied recent reports suggesting that the UAE central bank has set up a currency task force to study a possible revaluation of the Dirham against the Dollar.

"Such a task force doesn't exist at all", Al Ittihad Arabic daily quoted the Governor as saying.

UAE's currency is pegged to US Dollar on a fixed rate of 1USD=3.67 Dirham since the early 1980s.

On some unofficial estimates, the UAE currency is around 30 per cent undervalued in relation to the US dollar. Some economists say that this has helped to send inflation to 9.3 per cent in 2007 and is likely to rise to 10.9pc during the current year.

On the face of the downslide of USD, there were widespread speculations that the Central Bank will consider a 20pc appreciation of Dirham against US Dollar to inject more purchasing power to the country's currency.

"There is no intention for the time being to revaluate Dirham against US Dollar, and we haven't made any changes in this regard", the Governor was quoted by Al Ittihad.

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U.A.E. task force to study dirham's peg to dollar

The United Arab Emirates' decision to study a possible depegging of its currency from the tumbling U.S. dollar might pressure other countries in the Middle East to follow suit.
The central bank of the U.A.E. has set up a committee to study a possible depegging of the dirham from the greenback, according to a report by Zawya Dow Jones on Monday. This committee will help coordinate any delinking of the dirham and is expected to report its finding at the end of the year, the report said.

"This pegging system is undermined by the unsustainable combination of falling dollar and rising oil," said Ashraf Laidi, chief foreign exchange strategist at CMC Markets US.

"As long as the two go together, the GCC countries will find no choice but to reconsider their currency regimes," Laidi said. "The most likely outcome is to move toward a basket of currencies."

Crude-oil futures soared more than $3 a barrel on Monday to surpass $108 for the first time, before closing above $107 a barrel as the dollar remained weak against other currencies. See Futures Movers.

The Gulf Cooperation Council, or GCC, aims to strengthen economic cooperation in the world's main oil-producing region.

Five GCC members -- Saudi Arabia, the U.A.E., Qatar, Oman and Bahrain -- peg their currencies to the dollar, setting an official reference rate at which central banks buy and sell.

Last May, Kuwait abandoned its peg and now links to a currency basket that includes the euro, the Japanese yen and Britain's pound sterling in addition to the dollar.

"This is something that is not surprising at all," said Kathy Lien, chief strategist at Forex Capital Markets LLC, about the U.A.E.'s decision to study a possible depegging of its currency from the dollar.

"Overall, this is something that will take a few months to occur at the soonest," Lien said. "If it occurs, it will put further pressure on the U.S. dollar, because it's a further threat to the dollar's reserve status."

The eroding value of the country's exports and soaring inflation are among the main reasons why the U.A.E. is looking into depegging, Lien said.

The move by the U.A.E. comes at a time when the Organization of Petroleum Exporting Countries is considering alternatives to pricing oil in dollars. Saudi Arabia, a major player in OPEC, has 25% of the world's proven petroleum reserves.

"This will definitely pressure the Saudi Arabian monetary authority into heeding the increased calls by the public to reconsider the dollar peg," Laidi said. Pegging these countries' currencies to a continuously falling currency exacerbates the burden of the falling purchasing power on the public, he said.

"They [GCC countries] can't continue to follow the monetary policy of a country that's cutting rates when they are facing record inflation," Laidi said. (MarketWatch)

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ADCB urges UAE to ditch dollar peg

The UAE, the world's fifth-largest oil exporter, should reconsider its peg to the dollar, one of the country's largest banks said on Monday, as the US currency slides to a record low against a basket.

"The dollar peg has served the economy well, historically, but it may be wise to reconsider it in light of the long-term growth prospects in the region," said Eirvin Knox, chief executive officer of Abu Dhabi Commercial Bank (ADCB), the third-largest lender by market value in the Gulf Arab emirate.

The UAE is one of five nations in the world's biggest oil-exporting region that pegs its currency to the dollar.

The dollar slid to a record low against a basket of currencies on Monday on fresh worries about the health of US financial firms and fears of a US recession stoked expectations of aggressive rate cuts.

The dollar also hit a three-year low against the yen, below 103, and an all-time trough against the Swiss franc, as investors rushed to unwind leveraged carry trades in which funds are borrowed in those low-yielding currencies to buy higher-yielding assets.

The dollar peg has served Gulf economies "very well" and helped the region prepare for monetary union, the UAE central bank Governor Sultan Nasser Al-Suweidi said last week.

Suweidi said in November he was under mounting social and economic pressure to revalue the UAE dirham or drop the peg altogether as inflation surges in the second-largest Arab economy.

The peg forces Gulf Arab oil producers - except Kuwait which pegs its currency to a basket - to follow the US in lowering interest rates at a time when Gulf economies and inflation are surging on a five-fold increase in oil prices during the last six years. (Reuters)

Saudi real estate giant calls on UAE to drop dollar peg
Depegging from US currency will help fight inflation, Rakaa Properties CEO says. Source

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Dollar Falls, Gold Rises

The U.S. dollar was mostly lower against other major currencies in European trading Thursday. Gold rose.
The euro traded at $1.4616, up from $1.4576 late Wednesday in New York.

Other dollar rates in Europe, compared with late Wednesday, included 108.28 Japanese yen, up from 108.20; 1.1025 Swiss francs, down from 1.1079; and 0.9944 Canadian dollars, down from 0.9976.

The British pound was quoted at $1.9704, up from $1.9649.

In midday New York trading, the dollar bought 107.95 yen and 1.0984 Swiss francs, while the pound was worth $1.9708.

Gold traded in London at $910.30 per troy ounce, up from $903.10 late Wednesday. In Zurich, gold traded at $907.60 bid per troy ounce, up from $899.85.

Silver opened in London at $17.36, up from $17.15. (AP)

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Pressure mounts to drop dollar peg

The relentless decline of dollar over the past few months and Federal Reserve's interest rate cuts will force Gulf countries to revalue their currencies within months to stem spiralling inflation, currency analysts and experts said.

Speculation about a Gulf-wide revaluation is rising before a meeting between Saudi Arabia's advisory council, the Shura, and the finance ministry and central bank on February 17, according to Steve Barrow, currency strategist at Bear Stearns Co.

"It's going to be very difficult for central banks in the region to have adequate control of monetary policy, and hence inflation, when the Fed is slashing rates left, right and centre and the dollar is slumping,'' Barrow was quoted yesterday by Bloomberg. Inflation in the GCC has reached record high with Qatar reporting a record 14 per cent surge in Consumer Price Index, followed by the UAE, Kuwait and other countries. The regional average was 6.3 per cent in 2007, compared with 0.3 per cent in 2001, according to Merrill Lynch & Co.

Gulf-based analysts point out that most of the currencies of the GCC are undervalued against the dollar, based on their current-account balances, inflation and costs of goods and services. The UAE dirham was undervalued by 10-15 per cent and the Saudi riyal by 25-30 per cent, according to a report by Deutsche Bank AG.

"The dollar peg prevents nominal appreciation. Since the dollar itself has been falling, the result is rising domestic inflation. Some Gulf economies now have inflation rates of around 10 per cent," analysts said. Markets piled pressure on Gulf currencies last year as speculation mounted that more GCC countries would follow Kuwait and abandon links to the weak dollar partly to curb imported inflation.

Barrow's comments come in the wake of similar observations made by Standard Chartered, which said Gulf Arab oil producers could revalue their currencies together if the US dollar weakens further, with appreciations of eight per cent in the UAE dirham and Saudi riyal likely before April.

"The only way out for the GCC countries, unless the Fed reverses course soon or the dollar soars, is to adjust the currency regime with either a free float, revaluation or the adoption of a currency basket,'' Barrow said.

"Central banks can take other measures to try to limit the damage, such as raising reserve requirements, but we are sceptical that this works and we are also concerned that such tactics can adversely affect the banking sector,'' he said.

Analysts said the UAE, Qatar and Saudi Arabia, besides pegging to the dollar, also hold large caches of the currency. A decision to move from a dollar peg to a currency basket, such as Kuwait did in May, could encourage other countries with large dollar holdings to diversify, weakening demand for the greenback.

Calling the Gulf states to “loosen their ties to the dollar,”a leading analyst said nowhere are the dilemmas more acute than in the Gulf, where virtually all the oil-rich states peg their currencies to the greenback. The combination of soaring oil prices and the tumbling dollar is distorting their economies and fuelling inflation,” he said.

“The argument for linking to the greenback was to provide an anchor for the region’s economies, many of which are small, open and financially immature," the analyst said.

"In effect, the Gulf states import America’s monetary policy. The trouble is that a fixed currency makes it hard for oil exporters to adjust to swings in the price of oil. And monetary policy in the world’s largest oil-importer is not always right for those who sell the stuff." Source

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Dollar resumes downtrend against euro

The dollar sagged against the euro Tuesday ahead of US housing data that will provide the latest reading on the health of the troubled American economy, dealers said.


The foreign exchange market is also eyeing interest rate decisions due Thursday from the Bank of England (BoE) and the European Central Bank (ECB).

In late morning European trade on Tuesday, the euro advanced to 1.4720 dollars from 1.4691 dollars in New York late on Monday.

The dollar climbed to 109.59 yen from 109.13 yen late Monday.

In the commodity markets, gold soared to a fresh historic record of 876 dollars per ounce on Tuesday owing to rebounding oil prices, a weak dollar and geopolitical tensions, traders said.

A falling US dollar makes gold cheaper for buyers using stronger currencies, they added.

Later Tuesday, dealers were to absorb the US pending home sales index for November -- which could reveal that the country’s housing slump is not over yet, analysts said.

‘The world remains focused on the prospects of a US recession,’ said Tim Condon, research head at ING Financial Markets.

‘Most investors are waiting on what the Fed’s next move will be.’

Recent weak US economic data has fuelled fears of a recession in the world’s biggest economy and sparked speculation that the US Federal Reserve could slash American interest rates next month, analysts said.

Traders were also looking ahead to a speech Thursday in Washington by Fed chairman Ben Bernanke on the economic outlook, dealers said.

Investors will hunt for hints on how much the US central bank might cut rates in an effort to stave off a recession, following recent signs of weakness in the labour market, they added.

The US central bank’s key interest rate currently stands at 4.25 percent.

European Central Bank policymakers, meanwhile, were expected to hold rates steady at 4.0 percent on Thursday as inflation remains a concern, dealers said.

‘Market players are sceptical about the prospects of rate hikes in the eurozone,’ given the problems in the US economy and the worries that it may spill over to Europe, said ING’s Condon.

With the ECB worries about inflation, it is ‘not going to be in a tightening mood,’ he added.

The Bank of England’s decision, meanwhile, is expected to be a close call amid ongoing financial uncertainty over the global credit squeeze and the troubled US economy.

However, a small but growing number of analysts are predicting a quarter-point rate cut for the second month in a row, to 5.25 percent.

In European trading on Tuesday, the euro changed hands at 1.4720 dollars against 1.4691 late Monday, at 161.27 yen (160.37), 0.7435 pounds (0.7456) and 1.6427 Swiss francs (1.6405).

The dollar stood at 109.59 yen (109.13) and 1.1164 Swiss francs (1.1165).

The pound was at 1.9803 dollars (1.9699).

On the London Bullion Market, the price of gold later stood at 872.91 dollars an ounce, from 859.25 dollars late on Monday. Source

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UAE decision favours single GCC currency

The decision by the UAE government to retain the dirham peg to the US dollar demonstrates its commitment to achieving a GCC monetary union, according to a note by UAE-based firm HC Brokerage. GCC monetary union had been slated to come into effect by 2010, but the deadline has been extended indefinitely.


“The UAE is very dedicated to achieving a GCC monetary union, which was evident in its decision of not de-pegging its dirham from the US dollar,” the note states. Speculation about a possible currency de-pegging has driven the dirham up to a 17-year high and increased pressure on the peg.

And although the note acknowledges the success of the fixed exchange rate system for attracting foreign investors and “maintaining stability in the market,” HC Brokerage advocates the need for a more independent monetary policy.

“The GCCs/UAE’s path and that of the US has recently diverged, restraining monetary policy instruments from controlling escalating inflation in the UAE,” it says. While also noting the official claim that skyrocketing house prices is the main reason for the high rate of inflation and that officials in Dubai are trying to find ways to tackle this problem, HC Brokerage states: “It is important to note that without free monetary instruments it is difficult to control inflation especially since last year’s (2006) 15 per cent ceiling set on Dubai rent rates did not stop prices going up.”

However, the report concedes: “Economic growth is growing at unprecedented rates and even with high inflation rate many foreign investors are still showing interest. The UAE attracts the largest amount of foreign direct investment (FDI) in the GCC. Officials are not resting on their laurels and are still working on facilitating and encouraging foreign investments in the country like foreign ownership in the UAE.”

But recent figures show “that some other GCC economies seem to be catching eyes, with FDI increasing at higher rates than that of the UAE,” comments the brokerage firm. “The GCC attracts only 3.9 per cent of the FDI invested in the world.”
Source

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Court to rule on legalising political parties

Gulf Arab oil producers are considering allowing their currencies to appreciate after agreeing to keep pegs to the weak dollar, the UAE central bank governor was quoted on Saturday as saying.
Saudi Arabia and neighbours, preparing for monetary union, agreed this month to keep their currencies shackled to the dollar after Kuwait broke ranks and started tracking a currency basket. The UAE called last month for the others to follow suit.
"Revaluation of domestic currencies... is still an option on the table for central bank governors in Gulf countries," the London-based Al-Hayat newspaper quoted Sultan Nasser Al-Suweidi as saying.
But "the decision not to de-link Gulf currencies to the US dollar is final", he said, according to the newspaper.
Forward rates showed investors were expecting the dirham to appreciate 3.4% in a year and the Saudi Arabian riyal to rise about 1.6% in that time.
Al-Suweidi triggered a spell of intense market speculation about the imminent demise of the Gulf's fixed exchange rates, after he said last month he was under mounting social and economic pressure to sever the dirham's dollar peg.
He backtracked on those remarks after Gulf rulers agreed at a summit in Qatar to retain the dollar pegs and keep any talks on currency reform secret. Suweidi said on December 5 the dirham's exchange rate would not change for "the foreseeable future".
Al-Suweidi is now the second policymaker since the summit to say Gulf government are considering allowing currencies to appreciate against the dollar, which hit a record low against the euro and a basket of major currencies last month.
Bahrain's foreign minister Sheikh Khaled bin Ahmed Al-Khalifa said on December 8 that Gulf finance minister and central bankers will meet in days to discuss revaluations, but they had no plans to drop their pegs.
Saudi stance
Sheikh Khaled's version of Gulf currency diplomacy tallied with details given by a source familiar with Saudi foreign exchange policy who told Reuters last month Riyadh was willing to consider its first revaluation in 21 years to keep monetary union alive.
Any revaluation would be "small" and would be carried out in tandem with other Gulf states, the source said, ruling out severing the riyal's peg to the dollar.
Al-Suweidi has also always said he would only act in concert with other Gulf states.
Kuwait threw the monetary union plan into chaos in May when it started tracking a currency basket, saying the dollar's slide was fuelling inflation by making imports more expensive.
The UAE raised expectations it would follow when it called last month for all Gulf states to track currency baskets, drawing a rebuff from Saudi Arabia.
Saudi Arabia, the largest Arab economy, has not changed the riyal's rate since 1986. With the Gulf's largest population, the kingdom ran budget deficits in the 1990s and fears a revaluation would cut the riyal value of dollar-denominated oil revenue.
Its smaller, wealthier neighbours are more concerned the weaker dollar is eroding savings of expatriates, who dominate their workforce, and hampering their central banks in the fight against inflation, at decade highs across the Gulf.
The dollar pegs force the region to shadow US interest rates. The US Federal Reserve has cut rates by 100 basis points since September 18 to contain the fallout from a mortgage crisis, Gulf central banks are following to prevent currency appreciation. (Reuters)

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UAE Central Bank Governor defends dollar policy

"Gulf states need a collective political decision to end a long-standing Link between their currencies and the US dollar, UAE Central Bank Governor Sultan bin Nasser AI Suwaidi told the Oxford Business Group in an interview.

Al Suwaidi added that the UAE could be a right place to host the proposed Gulf Cooperation Council (GCC) central bank as part of plans to set up a monetary union.

In an interview with the Oxford Business Group he defended the slow moves by the UAE and its five partners in the GCC to create the long-awaited monetary union, noting that the six nations have never talked about a full union.

"I do not think the dollar peg affects our economic performance. The peg remains a GCC issue at this point. The peg has been beneficial to the UAE look at what we have achieved", Al Suwaidi said, indicating that "Of course, the sceptics will question this. At the end of the day, there is a relationship between how much you can sell and at what price. You cannot look at it in absolute terms".
He added that one could not necessarily sell the same amount of goods at a better price by being pegged to another currency.

Al Suwaidi said "on individual level we cannot do anything about the peg at this time. If we want to appreciate or depreciate our currencies or change the peg to a basket of currencies, we need to consult the other GCC countries as such matters constitute both economic and political decisions".

The governor said that the UAE is a strong candidate to house the proposed GCC central bank for the simple reason that it was the first of the six countries to offer to be its headquarters.
Al Suwaidi cited that the UAE is a strong candidate for three main reasons: first, it does not host many GCC institutions; second, the UAE was the first country to take the initiative to offer a place for the proposed GCC central bank; and third, the UAE adopts a free economy, one that is capable of attracting top industry talents.

He indicated that the entire UAE offers a pleasant environment that attracts human resources. More than anything Else, having the central bank would allow the UAE to help other GCC countries and serves as a leader in financial supervision and monetary policy.
"It is not a material benefit that we are seeking. It is rather leadership and being able to prove to the GCC states that we can drive forward and share our economic experience with them," Al Suwaidi said.

He defended the slow progress on the GCC monetary union, which has been set for 2010, adding that the plan now is not for a full union. The six members do not want to copy the monetary experience of European Union or any other bloc.
"We have never talked about a full monetary union. We have never aimed to have the monetary union as envisaged by the European Central Bank:' AI Suwaidi concluded. (WAM)

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'Depeg immediately' urge UAE businesses

UAE companies are pressuring the central bank to sever the dirham's peg to the dollar or at least revalue the currency, claiming the tumbling value of the US currency is beginning hit business.

"The dirham must be depegged immediately," said Khalaf Al-Habtoor, chairman of conglomerate Al-Habtoor Group, quoted UAE daily Emirates Business 24/7. "The implications of the dollar peg have really begun to affect business and markets."
UAE central bank governor Sultan Nasser Al-Suweidi said last month he was under growing pressure from "companies and communities" to drop the peg and track a currency basket including the euro to contain inflation.
Al-Suweidi backtracked after Gulf Arab rulers agreed at a summit last week to keep their dollar pegs. He said last week he saw no reason to change currency policy "for the foreseeable future".
The UAE will only revalue its dirham with Gulf Arab neighbours preparing for monetary union as early as 2010, foreign minister Sheikh Abdullah bin Zayed Al-Nahayan said on Saturday.
UAE business executives want a more flexible currency policy, Emirates Business reported.
"I think the market forces should be left to determine the value of the currency," Dubai Properties chief executive Mohammed Binbrek said.
The dollar pegs force the Gulf central banks to track US monetary policy at a time when the Federal Reserve is cutting interest rates and inflation in the region is surging. Inflation in the UAE hit a 19-year high of 9.3% last year.
"Given the high inflation, I would like to see the dirham linked to a basket of currencies around early 2008, with the non-dollar component comprising 5%," added Tawhid Abdullah, chairman of jeweller Damas.
The UAE is also worried the dollar's slide is hurting expatriates who make up more than 80% of the population. Al-Suweidi called for currency reform after South Asian construction workers rioted in Dubai over savings lost to dollar weakness.
The dirham hit a 17-year high last month after his remarks raised expectations of an imminent policy shift.
Gulf Arab policymakers will meet within days to discuss currency revaluations, Bahrain's foreign minister told Reuters on Saturday. (Reuters)

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UAE says any revaluation will be made with Gulf

The United Arab Emirates will only revalue its dirham currency with its Gulf Arab neighbours and the change will not happen in the "short-term", Foreign Minister Sheikh Abdullah bin Zayed al-Nahayan said on Saturday.

The UAE ratcheted up market expectations it would allow the dirham to rise for the first since 1997 when the central bank called last month for members of the Gulf Cooperation Council regional bloc to drop their pegs to the tumbling dollar.
"We are going to take the appropriate decision, but only as the GCC," Sheikh Abdullah told Reuters on the sidelines of a conference in Bahrain, when asked whether the UAE was considering revaluing the dirham.
"But there isn't any thought right now of taking such a decision in the short-term," he said.
Sheikh Abdullah, half brother of the UAE's president, declined to give details of a meeting of Gulf central bankers and finance ministers, which fellow GCC-member Bahrain said on Saturday would focus on currency revaluations.
Sheikh Abdullah said he was not aware whether the central bankers would discuss revaluations. He did not comment on the agenda of the finance ministers.
UAE Central Bank Governor Sultan Nasser al-Suweidi fired market expectations of a policy shift when he said in November that he was under growing social and economic pressure to switch from the dollar peg to a currency basket to contain inflation.
Asked whether the dollar's tumble to record lows on global markets was affecting the UAE economy, Sheikh Abdullah said: "Well it is. But we are certainly managing, because of the high price of oil, to compensate for the weakness (of the dollar)." (REUTERS)

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Central Bank warns moneychnagers to abide by official dollar exchange rate

The UAE Central Bank has warned moneychnagers to abide by the official dirham exchange rate against the US dollar.
The Central Bank announced that it had noticed that some moneychangers took advantage of the rumors promoted by some speculators, and raised the exchange rate of the Dirham against the US dollar on 1st and 2nd of December, despite clarifications from the bank that there was no intention to change the current exchange rate.

"Therefore, the Central Bank decided to deduct from the accounts of the concerned moneychangers and pay the difference in exchange rate to the harmed persons", said the bank in a statement.
It added that "The Central Bank requests the harmed persons who exchanged their dollars at less than the usual exchange rate on 1st & 2nd December, to send their original documents to: P.O. Box: 448 -Dubai Attention Mr. Sultan Ali Jasim within a month from date, and the Central bank will arrange with the concerned moneychangers to send the difference amount to their addresses".
The Central Bank urged all moneychangers to abide by Central Bank Regulations at all times, and noted that the Central Bank will enforce some more severe penalties in case of similar violation in the future.
"This action of some moneychangers is harmful to the tourism industry in the country and harmful to the National Economy, therefore, these moneychangers must observe the national interest and contribute to the well being of the Economy and not do the contrary." the statement said. (WAM)

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UAE warns forex speculators as summit buildup tests peg

The United Arab Emirates warned markets against betting on a dirham revaluation as investors piled pressure on the region's dollar pegs, expecting Gulf rulers to change currency policy at a summit next week.

The UAE was able to withstand pressure from speculators who drove the dirham to a 17-year high on Friday, a media report quoted Central Bank Governor Sultan bin Nasser Al Suweidi as saying, echoing a warning from Bahrain's central bank.
Suweidi ratcheted up expectations Gulf oil producers would sever links to the tumbling dollar, when he called last month for the region to track a currency basket to check inflation.
The speaker of Bahrain's parliament joined a chorus of calls for currency reform, proposing the government track the dinar against a currency basket as fellow Gulf oil producer Kuwait has been doing since May, Al Ayam newspaper reported.
In remarks carried by a Dubai-based newspaper, Suweidi moved to quell investor expectations that a change was imminent. "Their speculation will not yield the gains they expect," Suweidi said in remarks initially aired on state-owned Dubai TV, according to the newspaper.
Bahrain's central bank threatened to take action against anyone betting on dinar appreciation and accused foreign banks of spreading revaluation rumours, Middle East Economic Digest reported after an interview with Governor Rasheed Al Maraj.
Kuwait's central bank also warned investors against speculating on a revaluation in March. In May it dropped the peg to the dollar saying the U.S. currency's slide was fuelling inflation by making some imports more expensive.
Suweidi said the UAE central bank was not "currently" considering dropping the peg and any decision would be made by the government with other Gulf oil producers preparing for monetary union as early as 2010, the newspaper reported.
Gulf rulers meet in Qatar on Monday and Tuesday. A new certificate of deposits auction allows the central bank to fend off speculators, the newspaper quoted Suweidi as saying.
The central bank, which has no benchmark interest rate, uses the yield on the certificates to guide interbank lending. On Wednesday it stopped selling certificates at fixed rates and started auctioning them, allowing the yield to fall as demand for dirhams grew in anticipation of a revaluation.
The central bank also set its first repurchase rate this week, fixing its rate for lending to banks at 4.75 per cent.
The UAE would track any U.S. Federal Reserve interest rate cuts but may not match them exactly, the newspaper said.
Dollar pegs force central banks to track U.S. monetary policy to avoid currency appreciation at a time when the Fed is cutting rates and Gulf inflation is at its highest this decade.
In his call for reform last month, Suweidi complained Fed rates, which have fallen 75 basis points to 4.5 per cent since Sept 18, did not suit the Gulf. The UAE was under growing social and economic pressure to drop the peg, he said.
Bahrain's speaker kept up the pressure, proposing the government unshackle the dinar from the dollar, Bahrain's Ayam reported on its Web site on yesterday.
"Our purchasing power is declining due to the weakness of the dollar," Khalifa Al Dahrani said in remarks carried by several newspapers.
While the UAE is pushing for a switch to a currency basket, Saudi Arabia has ruled that out. The Saudis could consider revaluing their riyal without dropping the peg, a source familiar with Saudi currency policy told Reuters last month. (Reuters)

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UAE money exchange houses revise dirham selling rate

Anticipating a revaluation of the dirham, money exchanges in the UAE have already revised the rates at which they sell local currency against other currencies.

Some have even stopped accepting the US dollar altogether as the market speculated the UAE Central Bank would revalue the dirham on Sunday.
A currency dealer at Hadi Exchange said on Friday night the exchange was not accepting the US dollar until Sunday.
"We think the Central Bank is going to fix the dirham at 3.5 per dollar," he told Gulf News.
UAE Exchange was offering only Dh3.5 for every US dollar. The rate at Thomas Cook (on Friday) was Dh3.25 per dollar, while Wall Street Exchange was not accepting the US currency for selling the dirham. Source

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