The dollar keeps sinking amid near-global concerns about the future of the U.S. currency. Analysts forecast that the greenback will remain weak on the world market in November, and therefore the Russian ruble will trade at around 24 against the dollar. As a result, the Russians could find it increasingly difficult to save up as all the currencies grow cheaper.
The countries that depend on economic growth or an economic downturn of the United States have become more wary of inflation rates. The weaker dollar leads to devaluation of assets and lower industrial output. European countries whose currencies trade freely against the dollar are concerned about the rising euro – a tendency that has a negative impact on their exports. The slumping dollar can also push up inflation in countries whose currencies are pegged to the dollar e.g. Russia.
“The dollar continues its slide against all major currency pairs. The trend stems from a widely expected cut to 0.25 percentage point in U.S. interest rates,” said analysts at Soyuz commercial bank, in an interview to Bigness.ru. “The latest data concerning consumer confidence, which turned out worse than expected, also played a role,” analysts added.
Although the U.S. economy showed a better growth rate (1 percent higher than forecast) in the third quarter, the dollar kept going down. “We witness the effects of a long-term crisis in progress,” said Doctor of Economy Eduard Panin, a professor. “We can be certain that considerable problems are waiting in the wings for the U.S. economy in the year 2008 too, and the Federal Reserve will have to go on cutting interest rates,” Prof. Panin added. According to Panin, the dollar appreciation is highly unlikely to occur in the future.
The continuing surge in oil prices is yet another reason behind the weakening dollar, according to experts. We may as well put it otherwise: the price of crude oil goes higher and the U.S. inflation rates follow suit, and therefore interest rates should be lowered to curb inflation. “Traders will be playing against the dollar,” said Vladislav Lesin, an analyst with Vector Company. “It’s obvious that the Forex Market players will have a shot at trading $1.5 against the euro. To a certain extent, they’re going to pull it off just for the sake of ‘beauty.’ They don’t seem to pay any attention to the fact that there are no manifest signs of an oil supplies crisis in the world right now. Likewise, they don’t seem to take into account that core indicators of the European economy are not much better than those of the U.S. economy,” Lesin added.
“From the strategic point of view, the euro keeps growing stronger. Having traded as high as $1.4365 against the dollar, the euro is set to trade at a new high of $1.4689. We can assume that correction may take shape once the euro hits the target, but there are no signs of it at the moment,” said Georgi Fedotov, an analyst with NorthFinance, a finance company. According to Fedotov, an outpouring of bad news about the sliding dollar indicates a steeper economic downturn in the United States, spurring long-term demand for commodities including non-ferrous metals and oil.
Nikolai Petrakov, a director of the Institute for the Study of Market, is confident that “the decline of the dollar will continue. First, the dollar will go slumping because the U.S. policy still makes it go down. Second, a crisis affecting global oil production will also contribute to the downward trend. Incidentally, the crisis is probably artificial in nature,” said he in an interview to Kommersant newspaper. According to him, the euro is going to appreciate slightly against the dollar because neither the Federal Reserve not the European Central Bank takes any steps to reverse the trend.
“The ruble will trade against the dollar in a range from 24.5 to 24.85,” predicted Nikolai Sidorov, a chairman of Absolut Bank.
Those who have been following the global economic trends in the last several years are unlikely to see the weakening dollar as a great surprise. For the last five years, the United States has been funding consumption in lieu of investment. Compared with share investment, debt instruments are more frequently used for the funding. In other words, there is no news when it comes to the currency decline in a country that ran a huge current account deficit in the second quarter. Besides, economic growth of the U.S. economy has slowed down of late.
Translated by Guerman Grachev
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