U.A.E. Says Dollar Peg Here to Stay as Devaluation Bets Climbby and
Central bank governor says no pressure seen on dirham fixing
12-month forward contacts rise to highest level since March
The United Arab Emirates’ currency peg is here to stay, the central bank governor said, after contracts used to bet on a devaluation rose to the highest since March.
Policy makers don’t see pressure on the dirham and the U.A.E. is committed to its longstanding peg to the dollar, Mubarak Rashed Al Mansoori told reporters in Abu Dhabi on Sunday. Twelve-month forward contracts on the currency climbed to the highest since March on Friday, signaling increased speculation that the exchange rate may be moved.
The pressure in the forwards “is very little,” Al Mansoori said. “Our economy is very solid. We’re continuing with the peg.”
Currency fixings in the six-nation Gulf Cooperation Council have been the subject of increasing speculation after the drop in oil prices over the past two year slashed revenue for governments highly dependent on crude exports. Some investors are betting it may become too expensive to maintain the pegs as the GCC battles to plug fiscal shortfalls the International Monetary Fund says will total almost $900 billion through 2021.
Twelve-month forward contracts for the dirham climbed 22.5 points in the five days through Friday to 122.5, the highest level since March 15, according to data compiled by Bloomberg.
Last week, Saudi Arabia ordered banks in the kingdom to stop selling some products that allow speculators to bet against its currency peg just days after demanding information from lenders on the offerings, according to people with knowledge of the matter. One-year forward contracts on the Saudi riyal quoted outside of the country jumped by the most since May 26 on Friday.