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Dubai: Forward rates show investors expecting the UAE dirham will appreciate more than two per cent in a year after the central bank governor said on Tuesday the country was at a crossroads on the dirham's dollar peg.
Other Gulf currency forwards are also pricing in larger appreciations after Central Bank Governor Sultan Bin Nasser Al Suwaidi's remarks in Tokyo. Bahrain's dinar rose yesterday to its strongest since January.
Bids on one-year dirham forwards were 3.5895 per dollar at 1412 GMT. The dirham spot is fixed at 3.6725 by the central bank and the forward rates indicate where investors expect the currency to trade at a future date.
"The market has moved on the expectation of a possibility of a change in the peg," said Jason Goff, head of group treasury and market sales at Emirates Bank International Ltd.
One-year dirham forwards were pricing in a 1.8 per cent appreciation in the currency on Monday, the day before Al Suwaidi's comments, Goff said.
Yesterday, one-year dirham forwards were -830 at 1330 GMT, indicating an appreciation of 2.3 per cent in a year.
"The probability of an abandonment of the peg is very small but an option is a single revaluation," ING economist Dorothee Gasser said, predicting the one-year forward could go to four per cent.
Analysts tipped the UAE and Qatar as the Gulf countries most likely to revalue their currencies, according to a poll in September.
Qatar riyal forwards also widened to -452 for one year and -663 for two years at 1330 GMT, signalling markets expected an appreciation of 1.2 per cent.
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