Dollar Drop In Belarus Cancelled

The situation on the foreign exchange markets has once again drastically changed during the week.

While last week we noted the dollar's decline against other currencies, this time the dollar has strengthened against the euro, the yuan, and the Russian ruble. Myfin.by reviewed the results of the week on the foreign exchange market together with financial analyst Vadzim Iasub.

However, there was not any particular positive news for the dollar. The previous news, negative for the dollar, had already played its part. It is about market expectations that the FRS will take a break after next increase of a rate in May by 0,25 %, and in September, it may reduce it at all. It turns out that the market has already "digested" this information in the form of the recent dollar decline. In absence of new negative factors, the dollar showed a slight technical upward correction after the decline, which was lasting since the middle of March.

On the whole, the news flow for the dollar during the week was rather neutral. The so-called "Beige Book", a report published by the FRS eight times a year, was issued on Wednesday. Each issue of the book is a summary of reports from twelve US Federal Reserve Banks on current economic conditions. The publication shows that economic activity has been generally unchanged in recent weeks. Several counties have reported a moderate slowdown in employment growth. The labour market is becoming less tight as some counties report an increase in labour supply. The overall price level rose at a moderate pace in most counties, and the price growth rate has slowed.

Markets now estimate an 85% probability of a 0.25% rate hike in May. The US regulator may then take a pause. This pause is a good opportunity for the US equity market over 3-12 months. An analysis of six rate hike cycles over the last 40 years shows that the S&P500 index rises over a horizon of 3 to 30 months after the pause. On a horizon of 3-12 months, this growth rate is higher than the average annual market growth.

However, there is no full consensus at the FRS on the pause. In particular, James Bullard, the director of the Federal Reserve Bank of St. Louis, believes that recession concerns are wrong and it is necessary to raise the rate to the upper limit of 5.50-5.75%. And John Williams, head of the FRB of New York says that it will take another 2 years to get inflation back to 2% target.

Against such an informative backdrop, the euro, after five weeks of gains, declined against the dollar from 1.1060 to 1.0960 (-0.9%). The dollar rose from 81.4 to 81.7 (+0.4%) against the Russian ruble after declining a week earlier. Against the yuan, the dollar rose from 6.84 to 6.90 (+0.7%) after declining a week earlier. The DXY dollar index rebounded from its yearly low.

These external dynamics could not but affect the domestic currency market. By the end of the week, only the dollar rate rose against the Belarusian ruble, while the other monitored currency rates depreciated.

Last week, the dollar rose against the Belarusian ruble from 2.9356 to 2.9421 (+0.22%) after having declined a week earlier. The euro fell the most in percentage terms, after seven weeks of growth, from 3.2471 to 3.2251 (-0.68%). The yuan fell from 4.2887 to 4.2663 per 10 yuan (-0.52%), it is the second week of decline. The Russian currency fell the least in value. After rising a week earlier, it fell from 3.6082 to 3.6018 per 100 Russian (-0.18%), renewing its low since early this year.

This time the fall in the yuan and the Russian ruble "outweighed" the increase in the dollar in the basket. The basket weakened by 0.09%. The national currency has strengthened against the basket for the second week in a row.

Against the background of the oil price correction, we can expect the exchange rate of the Russian ruble against the dollar to remain close to the current levels. As a consequence, there will be no appreciation of the Russian currency against the Belarusian ruble. Given this scenario, the Russian ruble may remain close to 3.60 per 100 Russian rubles against the Belarusian ruble in a week.