Gulf oil producer Qatar is free to drop its peg to the U.S. dollar to tackle inflation, U.S. Treasury Secretary Henry Paulson said on Sunday.

He also said so-called sovereign wealth funds were mainly seeking investment returns rather than political goals on behalf of their governments.

Qatar needs to drop its peg to the dollar because the Gulf state's economy is surging while that of the United States is slowing, London-based MEED reported on late on Friday, citing the economic adviser to Qatari ruler.

"This is a sovereign decision," Paulson told reporters in the Qatari capital, Doha, after meeting the country's prime minister and central bank governor. "It has to do with the economic issues here."

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He said sovereign wealth funds "are pools of investable capital that are seeking the best return."

Paulson is on a visit to the Gulf, where five out of the six oil producers peg their currencies to the dollar.

In the Gulf, Qatar, the United Arab Emirates and Saudi Arabia have faced the strongest pressure to revalue their currencies or drop their pegs altogether as their oil-based economies surge -- fuelling inflation -- while the peg forces them to follow the United States in dropping interest rates.

Paulson said inflation in the region was relatively high, though monetary policy was not the only driver. Higher global food costs were also fuelling consumer price rises, he said.

A strong dollar is in the interest of the United States and its value will ultimately reflect strong long-term U.S. fundamentals, he said.

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