Can the Gulf’s currency pegs withstand a stronger dollar?

The appreciation of the US dollar since the end of last year has prompted renewed concerns over the sustainability of currency pegs in the Gulf, but we think these fears are overdone. Oil prices are the key determinant of the devaluation threat and we expect these to grind higher over the coming years. he US dollar has strengthened by almost 5% on a trade-weighted basis since Donald Trump’s election victory. In the past, a stronger dollar has contributed to the breaking of a number of fixed exchange rate regimes in the emerging world, most notably in Argentina in 2001. It’s no surprise, then, that some have started to question the sustainability of currency pegs in the Gulf.