March 23, 2005, 10:37 Business

The dollar is supported again

Ekaterina Gerashchenko The new US Federal Reserve rate increase by 0.25% was not a surprise for market participants. The accompanying comment from Fed Chairman Alan Greenspan was almost no different from the previous one. However, there are rumors on the market that the rate will rise faster.

The US Federal Reserve once again raised the refinancing rate by 0.25%. Now it is 2.75%. By gradually raising the rate, US financial authorities are strengthening the national currency to overcome the budget deficit.

This is the seventh increase as part of the tightening of monetary policy, which began at the Fed meeting on June 29-30 last year. The head of the analytical department of Zenit Bank, Danila Levchenko, believes that this year the Fed will not exceed the rate of 4% - this will be enough to reduce the budget deficit.

Traditionally, on the eve of the meeting, the dollar strengthens on international markets. On Monday, strengthening of the dollar's position against the yen and euro was recorded.

On the domestic market, the dollar gained several kopecks, rising from 27.48 rubles. on Monday to 27.576 rubles on Wednesday morning, and the euro-dollar pair today was fixed at $1.3076 per euro. But in general, according to the head of the analytical department of the Olma company, Vladimir Detinich , the market was not active, awaiting the Fed’s decision to increase the rate and the accompanying commentary from the monetary authorities.

After the increase was announced, the domestic market fell by 1.5 figures. In other words, the euro-dollar ratio changed from $1.3230 per euro to $1.3070.

This is due to the fact, says , senior dealer in foreign exchange market operations at MDM Bank Petr Neymyshev , that although the Fed has stated that “monetary policy will change at a restrained pace,” the market expects an accelerated rate increase, and therefore interest in the dollar is growing. It is difficult to predict how long this will last and how it will manifest itself in our market, the analyst adds.

The message made at the Fed meeting was almost the same as the commentary from the previous increase. “The Committee believes that even after this measure, monetary policy remains supportive and, combined with strong productivity growth, will support economic activity. Production clearly continues to grow at a solid pace, despite rising energy prices, and labor market conditions continue to gradually improve. Although long-term inflation expectations remain subdued, pressure on inflation has increased in recent months and the ability of companies to raise prices has become more pronounced. The increase in energy prices was not passed on, however, in a noticeable way to basic consumer prices.”

According to Peter Neymyshev, the market reacted very actively to the comment regarding the further growth of industrial production and prompted participants to take action. Neymyshev believes that in order to indicate further developments it is necessary to wait for statistical data from the United States for the 1st quarter of this year.

Due to subdued inflation expectations, the Fed Committee believes that “supportive monetary policy could be withdrawn in what is likely to be a measured regime. However, the committee will respond to changes in the economic outlook as necessary to fulfill its commitment to maintaining price stability."

Despite the fact that the Fed reports a moderate increase at each meeting, analysts expect more aggressive behavior from the US authorities regarding rate changes.