(Adds context, analysis)
DUBAI, June 23 The Saudi riyal fell sharply
against the U.S. dollar in the forwards market on Monday because
of the conflict in Iraq, bankers and traders in Dubai said.
One-year dollar/Saudi riyal forwards jumped as high
as 50.50 points, their highest level since the Arab Spring
uprisings hit the region in March 2011, from Friday's close of
25.00 points. The forwards later fell back to 38.00 points at
Sunni tribes took control of a border crossing between Iraq
and Jordan late on Sunday after Iraq's army pulled out of the
area following a clash with rebels, Iraqi and Jordanian
intelligence sources said.
A banker at a major institution in Dubai said hedge funds
and proprietary trading desks were buying the forwards in
response to insurgent gains in Iraq, though he added that the
market was not panicking and volumes remained moderate.
The Saudi riyal is pegged to the dollar, so forward
contracts are often used as a proxy for trading the region.
The forwards remain much lower than their peak of 91.50
points in March 2011, when the Arab Spring briefly appeared to
threaten political stability throughout the Gulf, and 255.0
points in November 2008, during the global financial crisis.
At Monday's peak, the forwards implied only a 0.2 percent
weakening of the riyal against its 3.75 peg to the dollar over
the next year - suggesting there is no significant pressure on
the peg and major fund flows out of the riyal are not occurring.
Currency forwards for other major Gulf currencies, including
the United Arab Emirates dirham and the Qatari riyal
, did not rise sharply on Monday.
Financial markets generally believe the rich Gulf
oil-exporting countries are insulated from the turmoil in Iraq,
having demonstrated since the Arab Spring that they are able to
use their oil wealth to buy social peace. Oil price rises due to
Iraq could end up benefiting the Gulf states economically.
(Reporting by Archana Narayanan; Additional reporting by
Carolyn Cohn in London and Martin Dokoupil in Dubai; Writing by
Andrew Torchia; Editing by Pravin Char)