The forecast of the IEE #2 (58). Currency tendencies for 2007

Summing up 2006 it is already possible to speak, that for US dollar it was one of the best periods. We shall recollect even the end 2004 beginning of 2005 when its rate has sharply gone downwards in relation to practically all leading world currencies

 From the point of view of dollar tendencies 2006 was not simple. On the one hand, in the spring, approximately since March-April has begun the natural buoyant cycle a rate of euro (in pair euro-dollar) which should end by October. With another - in February has retired Greenspen (he was 80 years old), not having had time to finish the strategy, there were no literally three-four months. Frankly speaking, not absolutely in this question the position of administration and the congress of the USA is clear: it was necessary to give Greenspen these three-four months for completion of strategy of outputting the economy from “a weak strip” which, by the way, last more than three years.

 Consequences were not slow to affect. The replaced Greenspen Ben Bernanke has started to carry out his own strategy. In May when the discount rate has reached 5 %, all world currency market has stood in expectations, that the buoyant cycle of monetary policy of the USA has ended, however, Bernanke after the next interview suddenly has unexpectedly declared, that “ he was incorrectly understood by mass-media ”, something like that he did not speak about a stop in a buoyant cycle.

 June has passed under amicable buoyant accompaniment of discount rates of the central banks of the world. FOMS also has almost unanimously voted for increase of the rate on federal funds up to present 5, 25 %. Now, in the beginning of 2007 everyone thinks how it would be quite good, if rate of FRS remained at a level of 5 %. But to blame for this FRS it is not necessary.

 Ben Bernanke consistently carries out the strategy of targeting of inflation about which he repeatedly spoke, being the head of economic advisers of the president of the USA. It was important to pay attention to his polemic on this question with Greenspen which did not deny its importance, but softly gave reason to that it will a little limit course influence on economic growth. So it subsequently became.

 This monetary policy has introduced the "bull" tendencies on the world market of dollar. The dollar has a little become stronger, though all perfectly understood, that its strengthening is unsteady.

One more important tendency of 2006 is big risks of dollar as a result of double deficiency - the state budget and the balance of payments of the USA. Many known world financiers, and also analysts of banks-market makers, being based on fair expectations of the unfavorable adverse balance of the balance of payments (more than $800 billion), predicted at the end of 2006 falling of a dollar exchange rate even on 30-45 %. These risks have remained, however stability of dollar is explained by “the Asian stability”. The essence of last is that the USA can be quiet for dollar while the central banks of Asia (Japan and China) in a stormy way are collecting their currency reserves (1, 1 billion US dollars in China and about billion - in Japan). In case of falling dollar these reserves will depreciate on the size of falling of a rate: Asia will pay the USA currency risks. It is easy to count up, that 30-45 % from the sum of these reserves constitutes the sum of deficiency of the balance of payments of the USA.

We think, as in Japan, and in China adequately understand this problem. We shall notice that the problem of deficiencies of the USA for 2006 has not disappeared, so, we still have a chance to observe interesting changes in the world economic because of action of this factor.

 The important tendency with which it is necessary to begin the forecast of a dollar exchange rate for this year, is the beginning of its natural buoyant cycle since autumn 2006 which should come to the end in the spring 2007. That is, with other things being equal, if only in the market there was only this one tendency, the dollar would grow, anyway, to euro. On this growth it would be possible to pawn monetary operations up to the end of March-beginning of May, 2007

 However in this process can interfere and affect the policy of the central banks for example the European Central Bank Mr. Тrishe, in his constant statements, that “ … it is necessary to watch sharp-sightedly the inflation (in the Europe) ” forms at the market the expectation of increase of discount rate of ЕCB. Current value of the rate since December, 2006 constitutes 3, 5 %. It means that even without possible further increases of rate of ЕCB, the economy of the consolidated Europe after an external log will react to the monetary policy by the growth of buoyant tendencies of a rate of the currency to dollar. And for this tendency it is necessary to make the amendment as a background of noted expectations, analysts predict increases of discount rate of ЕCB up to 4,5 % in 2007

So, despite of the introduction of dollar into a natural growth phase, in 2007 some factors putting bearish pressure will influence on it. As a whole for economy of the USA it even plus as it will stimulate growth and somewhat to promote to reduction of deficiency of the balance of payments. In case of serious threats to dollar it is necessary to expect reaction from the central banks of Japan and China which in that case will most possibly raise the discount rates (together or  separately for they can  play the game among themselves: “ who will pay this rate ”).

 The general forecast taking into account all factors does  more probable a dollar rate increase to euro over, than 1,3. The final result will depend on policy of FRS which continues to remain a little uncertain, and also from policy of the ECB, and others, first of all, the Asian banks.

 As the indicator can serve the market of gold and valuable metals. For the USA market of habitation continues to remain the indicator of its economic dynamics.

 The same forecast for Ukraine

 Forecasting the rates of exchange for Ukraine is easy, and difficult simultaneously. It is complex, because almost all tools of monetary policy are clamped by semi administrative measures. Practically do not work a discount rate and operations at open markets. Operations in the currency markets have narrowed the influence on economy owing to the overestimated rate of exchange of grivna and the negative current account which have reached milliard values.

 On the other hand to predict in Ukraine a rate of exchange is simply. It is necessary to know only about administrative intentions of the NBU regarding an establishment of an official rate of exchange: what its NBU will declare, such it will be in the market. So, for example, if there is a consensus between the NBU and the Cabinet about gradual translation of an official rate in 2007 to value 5, 1 grn. for US dollar such it will be by the autumn 2007, with other things being equal (in Bases-2007 the Soviet of NBU has established a rate dollar-grivna equal 5,25). However there is a high probability, that these conditions can be broken …

The currency market can be influenced as the universal processes partially described above, and possible change of a general economic situation in Ukraine.

 In particular, on the one hand, the economy of Ukraine will be influenced with the positive tendency of growth which can be connected with two factors. The first is a restoration of the potential lost in 90th years. This factor already goes to the decrease and less and less it will render "services" to a ruling politicum. The second – is the formation of the new economic order - the complex phenomenon which general essence is reduced to reduction of irrational economic chains, characteristic for the given evolutionary period of development of young economy. The governments professing "rigid" modes during such periods test temporary success (the phenomenon is described by E.Frommom in “Flight from freedom”).

On the other hand, after 2006 the economy of Ukraine should enter the historical first natural economic crisis. And though the previous governments by their mistakes have a little pulled in time its potential, "the breath" of a coming nearer crisis in Ukraine will start “ to feel the finance ” institutional sectors of national economy (by the decrease in disposed  incomes of house facilities, on a background of growth of aggregate profits, it is similar - with corporate sector).

On a background of toughening of financial "atmosphere", most possibly it is necessary to expect growth of criminal statistics, merges and absorption.

 And though at the beginning of the year cumulative value of all factors speaks well for positive economic dynamics with values of economic growth and inflation approximately the same, as in 2006, the probability of noted crisis does not weaken, and we shall be witnesses of its many displays in 2007.

Igor Makarenko

Posted on the website: 2007-01-18