Dollar falls as Saudi investors 'withdraw billions'

The dollar today fell from recent highs against the euro and yen following a report that Saudi investors were pulling billions of dollars out of the US.
According to the Financial Times, disgruntled Saudis have withdrawn as much as $200bn (£131bn) as relations between the US and Saudi Arabia come under increasing strain.

In the most recent irritant in already strained ties between the two countries, an analyst from the Rand corporation thinktank told the Pentagon that Saudi Arabia was the "kernel of evil". The fact that 11 of the 15 perpetrators of the September 11 attacks were Saudis had already sullied Saudi Arabia's image in the eyes of Americans.

An analyst cited by the Financial Times said Saudi investors have been deserting the US in recent months. Youssef Ibrahim of the Council on Foreign Relations, an American thinktank, said the move followed hawkish US commentators' calls for the freezing of Saudi assets.

But financial analysts reacted sceptically to the report. State Street Bank, an American bank, said there had been no significant shift out of dollar assets by foreigners recently.

"Foreigners bought $350bn in dollar assets since September 2001, 10% below the previous nine months," said an analyst. "This suggests that foreign appetite for dollar assets has not dramatically changed."

But there has been a shift out of dollar assets by American investors amid concern over the huge US trade deficit - $37.1bn in June - and over the weakness of the American recovery. Worries over the US economy have pushed down the dollar since the beginning of the year, although the greenback has been gaining in recent weeks.

Despite scepticism over a big Saudi shift out of dollar assets, Iran - described as part of an "axis of evil" by President George Bush - is reportedly considering switching crude oil sales from dollars into euros.

A committee of experts is said to be pondering the move, with Iran's central bank yet to issue a final decision on whether to drop the dollar. Iran has earned at least $10bn so far this year from crude exports, with oil revenues providing 80% of its foreign income.