Russia » Economics
Author`s name Michael Simpson

Dollar Decline: the Rubicon Already Crossed?

Euro rise to undermine Russia's consumer market
A financial market doesn't mean mathematical calculations, precision of estimates and forecasts that are typical of the natural sciences. It is a neurotic collection of complexes and prejudices. When at least one participant of the financial market feels very nervous, it produces an immediate effect on others. Now it seems that traders won't stop until one euro costs $1.2.

Has the fate of the dollar in Russia been finally diagnosed? They say that Friday trades decided the fate of the American currency for a very long period already. During the last trades before the weekend, the euro rate surmounted the psychological barrier of 1.1747 dollar per a euro. That was the ratio with which the history of euro started in 1999. According to the Friday trades, the euro rate reached the showing of 1.183 dollar. When the barrier was hit, traders felt broken.

Bloomberg reports that 21 of the 30 questioned traders, investors and bankers unanimously recommend selling out dollars and buying euro instead. After the eight weeks of steady declining of the dollar rate, the whole of the world has seen that the American currency will decline even further.

Chief currency analysts with the Bank of New York, Michael Woolfolk is sure that now traders won't stop until the euro rate reaches the mark of $1.2 per euro.

Bloomberg reported last week, leading investment banks had revised their forecasts concerning the fate of the US currency. Merrill Lynch experts say that euro rate will reach the level of 1.25 dollar per euro by the end of the year. Their colleagues from Goldman Sachs say that the rate may be even 1.35 dollar per year by the same moment.

Is Russia ready for this scenario? The Central bank of Russia makes no comments so far. The Russian Ministry for Economic Development and Trade forecasts the dollar to ruble rate at the rate of 31.9-31.1 ruble per dollar. Thus, if the forecasts prove true, the Russian ruble will get 12% stronger with regard to the dollar. The Ministry for Economic Development and Trade is responsible for development of the national economy, which means that highly likely the ministry will have to face claims of political character by the end of the year, right before the parliamentary elections.

The ministry insists that the still declining dollar rate is not so dangerous for Russia as for the countries belonging to the Eurozone. Deputy Minister for Economic Development and Trade Arkady Dvorkovich says that Russian economy is not so much sensitive to changes in the ratio of world currencies. In his words, as a lion's share of Russia’s export is oriented on dollar and its import is oriented on euro, the two different vectors smooth the situation. In other words, our exporters are earning less than they could do at least half a year ago, while importers of European goods are experiencing problems with sales. Both are in an unfavorable situation.   

Arkady Dvorkovich thinks that Russian producers will experience less pressure from the European import and will recover. However, it is perfectly evident that now Russian producers have to compete mostly with Chinese producers and local producers specializing in production of fake goods. So, deliverance from European import will hardly be a rescue. Consumer goods will seriously go up in price until the end of the year. Unfortunately, this fact may seriously change the attitudes among the electorate. 

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