Translated material
Real estate crushes dollar
The fall in the dollar/ruble exchange rate is directly related to the weakening of the American currency against the euro to $1.383 per euro (the previous maximum for the euro was recorded last week - 1.3813). The reason for traders to play for a lower dollar exchange rate were reports from the American investment bank Bear Stearns that investments in two of its investment funds operating in the high-risk mortgage market had actually depreciated. The letter from Bear Stearns says that in one of the funds there are no funds left at all, in another the price of one dollar invested by investors is now only about 9 cents. And this despite the fact that as of March 31, the first of the funds, High-Grade Structured Credit Strategies Enhanced Leverage Fund, had a capital of $638 million, and the second, High-Grade Structured Credit Strategies Fund, had $925 million.
Bear Stearns noted that the funds faced "unprecedented losses" on bonds that had the highest ratings - "AAA" or "AA". “This will have a negative impact on the debt market,” said Peter Plaut, an analyst at hedge fund Sanno Point Capital Management. “The appetite for risk in the market will further decline.” "Significant investor concerns about problems in the subprime mortgage bond sector are weighing on the dollar," said Masaki Fukui, chief market economist at Mizuho Corporate Bank. “Against this background, and also taking into account the prospect of rising interest rates in Europe, European currencies, unlike the American one, now look very strong.”
This fact greatly worries the European authorities. In their opinion, the too rapid growth of the euro goes beyond the market. French Minister for European Affairs Jean-Pierre Jouyer, in an interview with the International Herald Tribune, said that the exchange rate of the euro against the American, Chinese and Japanese currencies does not reflect the real relationship between economies. “The problem is that the euro has reached an all-time high not only against the dollar, but against the yen and the yuan,” Mr. Jouillet said. “Moreover, we are at a level that has no connection with the strength of the economy.” French President Nicolas Sarkozy last week instructed Economy Minister Christine Lagarde to develop a common position with his colleagues in the eurozone and the ECB on the formation of exchange rate policy.
Market participants believe that only the US Federal Reserve can save the dollar from an even greater fall by raising the discount rate. This can only happen if the American authorities recognize inflation risks as significant and tighten their credit policy. “If the indicators are high, most likely, the rate increase will not be postponed,” believes Yuri Sedykh, a dealer at the Russian Development Bank. “In this case, the dollar exchange rate will rise slightly. However, technical analysis shows that the dollar has already reached the limits where a correction is possible.”
Fed Chairman Ben Bernanke, who spoke yesterday, said that “against the backdrop of a fairly high level of capacity utilization and a moderate decline in inflation pressures, which has yet to be convincingly confirmed, the Fed persistently emphasizes that the risks of rising prices are its main concern.” These words did not instill confidence in investors that the rate would be raised, so Mr. Bernanke's statement did not have much impact on trading.
On the Russian market, the dollar continues to move along the global vector and in the short term will change against the ruble in the same way as against other currencies.