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Author`s name Ольга Савка

Successful development of American economy spurs dollar growth against euro

In addition to economic problems, Europe has to deal with a whole bouquet of other problems, of which America is relieved

Recent successes of the American economy boosted the growth of the US currency all over the world. The dollar reached its 13-month maximum yesterday, when American investors were celebrating Independence Day. The cost of the American currency on the Russian market reached the level of 28.8 rubles per dollar, which is quite a significant increase in comparison with the value of 27.8 or 27.9 rubles per dollar that was registered in Russia in the beginning of the year. It is noteworthy that the majority of financial analysts could not even predict such a skyrocketing global increase of the dollar just six months ago. The dollar may thus reach the level of 1.15 dollars per euro in the near future.

The Bush's administration repeatedly stressed out its adherence to the “strong dollar” policy last year, although the dollar was losing its value against all other world currencies anyway. The US dollar set its all-time minimum in December, when it reached the level of 1.367 dollars per euro. The majority of financial forecasts were not dollar-favorable against such a background.

A certain rise, which was registered in the American economy in 2005, and the gradual increase of the Federal Reserve System rate added investment attraction to dollar assets. The euro suffered a powerful blow in June after the failure of the EU Constitution referendum in France and in the Netherlands.

The Federal Reserve System raised the refinancing rate at the end of last week by 0.25 percent up to 3.25 percent. It is noteworthy that the latest increase is not final. Furthermore, the USA registered an increase on most important economic indexes – the Michigan Consumer Sentiment Index and the ISM industrial index. “No one ever expected it, - an economist of the Trust investment bank, Yevgeny Nadorshin said. - Everyone rushed to buy dollars,” said he. As a result, the dollar set the 1.2 dollars per euro level on Friday.

The purchase of the American currency continued yesterday. The dollar cost reached the level of 1.1894 dollar per euro on the international market. The American currency gained 15 kopeks to its cost in Russia yesterday. “The market is following the increase of the Federal Reserve System rate. The US economy has been showing quite good results lately, which means that the American currency will continue growing. The dollar will most likely continue its strengthening in the near future,” an economist with Troika Dialogue, Anton Struchenevsky said. “In addition to economic problems, Europe has to deal with a whole bouquet of other problems, of which America is relieved,” economist Yevgeny Nadorshin said.

A member of the European Central Bank administration, Christian Noyer, shed some light on those problems yesterday. Mr. Noyer warned the national economies of the euro zone against making hasty decisions to pull out from the currency union. According to the statement from the ECB vice-president, the EU Christian Noyermembership for such a state would be called into question. Appeals to decline the euro on the political level have been sounded only in one European state before – Italy. Christian Noyer's statement did not calm investors down and only boosted the sale of the European currency.

Analysts believe, however, that the growth of the US dollar is not going to last long. A further movement of the dollar rate will depend on economic results and on the efforts of the Federal Reserve System to adjust the refinancing rate. Yevgeny Nadorshin believes that both the rate and the dollar value will reach their maximum before autumn.

Leading economist of the United Financial Group, Yaroslav Lisivolik, thinks that the weakening of the euro against the dollar may continue in the future, albeit in a short-term perspective. “The losses of the euro are presently connected with political events. Specialists are concerned that the euro zone might disintegrate. This apprehension is exaggerated; the affairs will be corrected in autumn,” the specialist said. Vladimir Tikhomirov, a senior economist with Uralsib Corporation, believes that investors will recollect the problems of the American economy, such as the budgetary and the trade balance shortage. “These problems have not gone up in smoke,” Tikhomirov said.

Financial specialists did not predict the current rise of the dollar rate: any forecasts about the future of both the dollar and the euro receive quite skeptic estimations at the moment. As for the Russian market, the dollar grows against the Russian ruble along with its growth against the euro. It is worth mentioning that the Russian administration was quite concerned about the sudden strengthening of the ruble, which was registered during the previous one or two years. Both the Russian president and the minister for finances, not to mention experts, said that the growing ruble was undermining the competitive ability of the national industry.

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