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3/31/06

Cattle Network - Threat Of Middle East Reserve Move EURO Stresses The Dollar

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LONDON (Dow Jones)--A possible move by Middle Eastern central banks to cut the dollar's share in their foreign currency reserves is placing new pressure on the already shaky currency.

A report on Wednesday that a United Arab Emirates central bank will decide next week whether to shift a portion of its reserves from the dollar to the euro renewedlong-term speculation that other Middle Eastern banks would make the same change. Some analysts still question whether the currency market's focus on this topic is justified, given the relatively small amounts involved in the U.A.E.'s reserves. But with the dollar's popularity already wobbling with signs that U.S. interest rate hikes are ending, the fresh speculation put the greenback under pressure.

"We have seen similar comments from Iran, Syria, and now from the U.A.E., so certainly momentum is gathering," said Monica Fan, head of currency strategy at R.B.C. Capital Markets in London.

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