Zee Beam News

11-27-2006 RBC News - And it is losing value by the day
The ruble rose to its seven-year high against the dollar yesterday, to 26.556 RUR/USD. Western analysts expect the euro to rise above 1.3 USD/EUR soon. The dollar is set to depreciate in both the short and the long term. The euro could climb to $1.45 in 2007. And the ruble will also rise against the dollar to 25.7 RUR/USD. The dollar’s decline on Tuesday and Wednesday was due to short-term reasons: investors were fixing profits before Thanksgiving Day in the United States and Labor Thanksgiving Day in Japan. The US currency continued to fall on Thursday but there were more substantial reasons behind it. Adam Cole at the Royal Bank of Canada thinks the euro’s rise against the dollar on Thursday was due to the better than expected Ifo business climate index published by Germany’s Ifo Institute. The index went up 1.5 points to 106.8 in November, while it was expected to drop by 0.1 point. The euro was also buoyed by remarks by European Central Bank Governor Miguel Angel Fernandez Ordonez who said that economic growth in the euro zone was set to continue after the Central Bank raises its interest rates in December. He said the eurozone economy could grow by 2.5 percent in 2006. Analysts interpreted this statement as a sign that the European Central Bank was going to raise interest rates not only in December 2006 but in 2007 as well. Meanwhile, data from the US suggest that the Federal Reserve System will lower its interest rate. The consumer sentiment index published by Michigan University dropped by 1.5 points in November, to 92.1, though it was not expected to go down by more than 0.6 points. William Poole, President of the Federal Reserve Bank of St. Louis, said inflation was currently about to stabilize or go down in the United States. “Declining inflation and further economic slowdown in the United States mean that the Federal Reserve System has no need to raise interest rates. On the contrary, it has reasons to lower them,” said Stanislav Kleshchev, analyst at Vneshtorgbank 24. Over the past three days, the euro has failed to break through the level of 1.3 USD/EUR, which was registered on 26 April 2005. In this respect, Jan Lambregt of Rabobank says Ifo’s forecast could be too optimistic. He said Rabobank’s analysts did not expect the euro/dollar exchange rate to rise above 1.298 USD/EUR over the next few days. Alexander Morozov, chief economist at HSBC bank, is convinced that the euro will certainly rise to $1.3 by the end of this year. And Stanislav Kleshchev thinks this will happen before the end of November. He expects the European currency to buy $1.33 by the end of the year. Next year the dollar will drop further to 1.45 USD/EUR, Alexander Morozov reckons. Vladimir Abramov, at Globex bank, says the situation could yet improve. “Tough rhetoric by the Central Bank or the US Federal Reserve System about the dangers of a weak dollar for the global economy could improve things,” he told RBC Daily. The ruble/dollar market is expected to become more stable. The dollar dropped by RUR 0.04 to 26.6122 RUR/USD on Wednesday, and the Central Bank set the official exchange rate at 26.556 RUR/USD on Thursday. The ruble has risen to its seven-year high against the US currency, despite the Central Bank’s efforts to control the situation. “Inflation has slowed down in Russia, and the Central Bank does not want to strengthen the ruble further. We think the dollar will not drop below 26.5 RUR/USD before the end of 2006, but the ruble could appreciate by 5 percent (to 25.7 RUR/USD) next year,” Morozov said.