Oil price rebound resulted in losses for speculators. Those who bet on the Saudi Arabia currency devaluation also suffered losses.
Amid slumping oil prices there were a lot of speculations that the Saudi Arabia government would abandon its dollar peg. Due to low oil prices Saudi Arabia faces about 20% budget deficit but the riyal devaluation can solve the problem.
During the last year traders supported the idea that the Saudi would de-peg its currency, using the forward bond market. In January the odds of devaluation were at their pick, but as oil prices started to rise, chances that the government would decide to unpeg the riyal decreased dramatically.
Oil prices keep climbing the second month in a row, crude surged by 50% from its lows. The riyal is fixed to 3.75 per the US Dollar since 1986.
Senior economist of HSBC Simon Williams noted that the peg has been maintained for 30 years both in periods of soaring and tumbling oil prices. Thus, in his opinion, lower oil prices cannot be a good enough reason for Riyadh to change its stance.
