Forex Blog: Currency Trading News & Analysis.

April 1st 2006

OPEC diversification gathers momentum

In all likelihood, the next couple of years will witness a narrowing of interest rate differentials between the US and Europe. Accordingly, many analysts are predicting risk-averse investors to begin migrating their capital from the US to Europe, which would cause the Euro to appreciate. Leaders of Central Banks have begun to make their own preparations in response to this expected trend. The United Arab Emirates has already announced its intention to increase the portion of its forex reserves held in Euro-denominated assets from 2% to 10%. Other Arab nations, including Iran and Syria, are mulling similar propositions. If these nations ultimately decide to diversify, it could feed back into forex market psychology and hasten the dollar’s decline. Dow Jones News reports:

U.A.E. officials have repeatedly said that if they move out of dollars, it will be because of market dynamics rather than because of politics. Such a move would reduce the risk that the central bank would incur heavy losses should the dollar weaken sharply.

Read More: Threat Of Middle East Reserve Move Stresses The Dollar

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Posted by Adam Kritzer | in Central Banks, Euro, US Dollar | No Comments »

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