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Dubai: Investors betting on an appreciation of the dollar-pegged UAE dirham pushed the currency to a six-week high yesterday after Gulf central bankers failed to revive a monetary union plan.
Bids on the dirham firmed to 3.6718 per dollar in early trading, the highest level since July 26, the day after Kuwait allowed the dinar to appreciate to an 18-year high against the sliding US dollar.
Fuelling inflation
Kuwait dropped its peg to the dollar in May saying the dollar's slide on global markets was making imports more expensive and fuelling inflation. The dollar hit a 15-year low against an index of six major currencies yesterday.
A possible US interest rate cut this month will test the UAE's commitment to a currency peg put in place to prepare for monetary union by 2010, a deadline central bank governors said after a meeting on Saturday would be difficult to meet.
Should the US Federal Reserve cut rates on September 18 as markets expect, the UAE would be under pressure to follow to maintain the relative value of its currency, and ignore rising inflation, which hit a 19-year high of 9.3 per cent last year.
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