Gulf Co-operation Council (GCC) states are unlikely to act on the euro’s breach of the $1.50 mark for the first time yesterday but will instead continue their wait-and-see approach on whether to depeg or revalue their currencies, said analysts.
“The GCC will not do something immediately. They will continue to sit it out as long as the euro does not move much beyond that,” said Eckart Woertz, an economist at the Gulf Research Center in Dubai.
Woertz said although inflation is at record highs in many GCC countries it is unlikely to spur the governments into action.
“They don’t care too much as the inflationary impact on the upper echelons is presumably limited,” he said.
On Tuesday, the euro broke through $1.4966 in North American trading after a stronger-than-expected reading from Germany’s Ifo business-climate index, a weaker-than-expected US consumer-confidence and dovish remarks from US Federal Reserve Vice Chairman Donald Kohn, analysts said.
The euro went on to breach $1.50 in late North American and early Asian trading and further extended gains yesterday to break through further resistance at $1.5050 and notch another high at $1.5087, according to data from FactSet.
Fears that the US economy is showing symptoms of stagflation – a combination of stagnant growth and high inflation – left the single European currency, which began trading in January 1999 and now covers 15 nations, hovering above the $1.50 level yesterday.
Dubai International Financial Center chief economist Nasser Saidi said any decision by the GCC to depeg or revalue would be based on a study of all factors including the increase in commodity prices and global inflation.
“GCC policymakers are in a watchful state until the outlook for the US economy is clearer but the dollar weakness is not going to affect the policy decision-making at the moment.”
Phillippe Dauba-Pantanacce, senior economist for the Middle East and North Africa at Standard Chartered Bank, said the euro’s latest move is a warning sign for the GCC. (Zawya Dow Jones)
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