In recent years, Asia’s current account surplus with the US has ballooned, and Asian Central Banks’ collective holdings of USD now exceed $2 trillion. While currency traders continue to monitor this situation closely for signs that Asian Central Banks are planning to diversify their reserves, the focus is slowly shifting to the Middle-East, which is expected to run a current account deficit comparable to that of Asia. Thus far, Middle-Eastern countries have been quick to take the proceeds gained from higher oil prices and reinvest them in US Treasury securities, resulting in a net effect of zero on the USD. If oil prices remain high, and Middle Eastern countries find themselves awash in profits, it is extremely likely that they will begin to diversify their foreign exchange holdings, at which point the USD will suffer. The Times online reports:

The Middle East [is now] in the same league as Asian central banks - heavy hitters in the currency markets because of their vast dollar holdings. Traders and analysts routinely scrutinise every word from Asian central bank officials for signs of currency skittishness, and the markets can move dramatically on apparent shifts in sentiment.

Read More: ME takes centerstage in currency markets