The speculation swirling around Middle Eastern currencies is a rare instance of economic textbooks being followed to the letter. So widespread is the belief that half a dozen Gulf states have little choice but to revalue their currencies that investors from hedge funds to retail brokers are all placing their bets.

By pegging their currencies to the dollar, the Gulf Co-operation Council states (Saudi Arabia, Kuwait, Bahrain, Qatar, United Arab Emirates and Oman) surrendered the tool of interest rates to control inflation. Monetary policy, instead, has to mirror the country to which the currency is pegged - in this case the US. Enforced monetary discipline and a stable currency often serve developing economies well. For GCC states, where the main export, oil, is dollar-denominated, it made particular sense.