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Kuwait Lets Dinar fall Again as Dollar Rebounds - ASHARQ AL-AWSAT English Archive
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KUWAIT/DUBAI (Reuters) – Kuwait allowed the dinar to depreciate against the U.S. dollar for the second straight working day, letting it drop 0.05 percent on Sunday and suggesting it is tracking global currency moves more closely.

The dinar will trade around a mid-point of 0.28245 per dollar, the central bank said, from 0.28230 on Thursday. The move brings the total drop in the value of the dinar since Wednesday to 0.16 percent.

Kuwait, the Middle East’s fourth-largest oil exporter, let its currency fall on Thursday after the dollar posted its biggest one-day gain in a year against a basket of six major currencies.

The dollar rose again on Friday from record lows against the euro as trouble in the U.S. credit markets led investors to repatriate funds from overseas.

“It looks now like the global currency market is going to move the Kuwait dinar back and forth,” said Mohamed Dameer, senior currency dealer at Abu Dhabi Islamic Bank.

Kuwait abandoned its peg to the U.S. dollar in May, adopting a basket of currencies in a bid to contain the impact of rising import prices on inflation. It has since allowed the

dinar to appreciate 2.37 percent.

Inflation in Kuwait rose to 5.37 percent in April, from 5.15 percent in March, government data showed on Saturday.

Currencies of the other Gulf Arab oil producers, including Saudi Arabia and the United Arab Emirates, remain pegged to the dollar, which hit an all-time low against the euro on Wednesday.

“We expect to see the central bank adjust the exchange rate on a regular basis to reflect changes in the value of the dollar against the world’s major currencies, particularly against the euro,” said Simon Williams, Middle East economist at HSBC bank in Dubai.

Kuwait’s central bank was closed for the weekend on Friday and Saturday.

“The market assumed last week that the currency basket had been activated, and this second small-scale adjustment confirms it,” Williams said.

Kuwait has not revealed the composition of its currency basket. Standard Chartered bank assumes the dollar’s weight in the basket at 70 percent.

“Our gut feeling is that it is a peg, but that this could be changed depending on inflationary pressures,” Standard Chartered Middle East economist Steve Brice said.

“Clearly, yesterday’s inflation release indicated that the risks are still to the upside here and the CBK will undoubtedly be watching this situation carefully,” Brice said.

Kuwait imports about 38 percent of its goods from the 13 countries that used the euro.

Markets had tested fixed exchange rates around the region on Thursday, betting dollar weakness and rising inflation would tempt other Gulf oil producers, especially the United Arab Emirates, to follow Kuwait’s example.

Investor interest in the UAE dirham , which has been pegged at 3.76275 per dollar since 1997, has eased.

The currency fell to 3.6728 in early trading, down from

3.6718 on Thursday.

“The Kuwait devaluation and the dollar strength will take some of the pressure off of the dirham,” Dameer said.

Asharq Al-Awsat

Asharq Al-Awsat

Asharq Al-Awsat is the world’s premier pan-Arab daily newspaper, printed simultaneously each day on four continents in 14 cities. Launched in London in 1978, Asharq Al-Awsat has established itself as the decisive publication on pan-Arab and international affairs, offering its readers in-depth analysis and exclusive editorials, as well as the most comprehensive coverage of the entire Arab world.

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