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A Rare Occurrence In The Saudi Currency Market Tells You That Trouble Is Brewing In The Middle East
Ms Sans Serif
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[quote:Anonymous Coward 1211168:MV8yMDA3NzIwXzMzNzM1MTU4X0NDMERGRThE] The head of the national police, Esmail Ahmadi Moghadam, was quoted by the Fars news agency as saying a special unit comprised of police chiefs and government economic officials had been created "to combat those perturbing the currency market." He added that many people were keeping stashes of foreign currency and gold at home, "which is having a negative effect on the economy." The crackdown was an apparent bid to halt a dramatic plunge in the value of Iran's currency this week. On Tuesday, President Mahmoud Ahmadinejad said Western sanctions were mostly to blame. But rivals said his mismanagement of the economy was the main cause. One money changer said almost no transactions were taking place in the market, making any valuation unreliable, but the assumption was the rial had stabilised early Wednesday at around 34,000 to the dollar. Online websites that normally track the currency market were censored, none giving the rial's value against the dollar. On Tuesday, the rial closed at around 36,100 to the dollar. A week ago, it was trading at around 22,000 to the greenback and at 13,000 a year ago. The money's plunge has greatly increased inflation in Iran, which is widely seen as far higher than the official 23.5 percent given by the central bank. Food costs, notably, have spiralled, to the concern of Iranian families. Merchants, some of whom have lost millions of dollars in a day, say doing business has become nearly impossible. The US government has said it sees the rial's plunge as proof Western sanctions are having a big impact on the Islamic republic's economy. But Ahmadinejad said that, even with the "psychological war on the exchange market," Iran would not be pressured into curbing its nuclear activities -- the stated aim of the sanctions. http://uk.finance.yahoo.com/news/iran-crackdown-money-changers-currency-102042205.html [/quote]
An important shift is developing in Saudi Arabian currency derivatives markets as Iran becomes engulfed in populist protests amid hyperinflationary pressures and armed conflict breaks out between Turkey and Syria, heightening concerns about tensions in the Middle East.
The 12-month forward rate on the Saudi Arabian riyal – or the difference between how many riyals traders think a dollar will be able to buy a year from now versus how many riyals a dollar can buy today – has been hovering just above zero for the past two weeks.
In other words, as pointed out by BNP's Bartosz Pawlowski, traders are expecting the riyal to depreciate against the dollar.
And that is something that almost never happens – unless markets are getting really worried about Saudi Arabia, one of the most stable countries in the region.
link to www.businessinsider.com
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