One day after Syria announced it intended to discontinue using the U.S. dollar peg in July and instead link its currency to the International Monetary Fund’s Special Drawing Right (SDR), indications from trading in currency forwards hint that the United Arab Emirates may be the next Middle Eastern country to stop pegging its exchange rate to the U.S. dollar.

A leading news source said the second-largest Arab economy may follow Syria and Kuwait, which both said in the past two weeks they planned to dump the dollar peg to curb rising import costs and inflation.

One expert said the market expects that the U.A.E. dirham is the most likely of the Gulf countries to follow.

"Forwards show what the market is betting on,” she was quoted as saying.

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If that happens, the dirham would reportedly climb to 3.66025 to the dollar in a year, 0.35 percent higher than the current exchange rate. The average premium in the so-called implied rate in the past year was 0.04 percent.

In comparison, the premium on one-year Qatari riyal forwards is reportedly 0.06 percent at the present time.

Kuwait switched to a currency basket on May 20, and yesterday the Central Bank of Syria governor said his country needed to broaden its peg to "stabilize the Syrian pound and bring down inflation.”

On May 22, the U.A.W. Prime Minister said the country would maintain its link to the dollar, even after inflation heightened to 10.1 percent in 2006, from 7.8 percent the previous year.

One Middle East economist opined that Syria’s move could lead to further speculation of another country "de-pegging” from the dollar. He noted that any change in the U.A.E.’s exchange rate regime would be in coordination with other Gulf states.

The six members of the Gulf Cooperation Council, including Saudi Arabia, are planning to launch a unified currency in 2010.

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