The vain attempts of European politicians to devise effective measures for overcoming the debt crisis, apparent acknowledgement of a recession in the Euro zone and comparatively satisfactory macroeconomic indicators in the U.S. (compared to those in Europe) will be the springboard for the dollar to steadily rise in value. According to some estimates, by the end of the first 6 months of 2012 the Euro/dollar exchange rate could reach US $1.2, although some analysts are making more ambitious predictions promising equality of the dollar to the Euro
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| PHÎÒÎ: AP |
The U.S. dollar is irreversibly gaining the trust of investors and central banks. In 2009, the latter increased the share of Euros in their reserves, but today they are showing preference for the U.S. dollar. According to the IMF, the share of dollars in global gold and Forex reserves in the Q3 2011 increased to 61.71% compared to 60.22% in Q2 2011. Conversely, the share of the Euro fell from 26.73% to 25.72%, having dropped to the level in Q1 2009.
“While the Greek issue remains unresolved and there is no coordinated monetary and credit policy in Euro zone countries, the share of the Euro in global gold and forex reserves will continue to fall and the influence and share of the U.S. dollar will rise. It is also possible that the share of the dollar in global currency reserves will increase and thereby psychologically influence the world currency market and support the value of the American currency,” says Director of the Information and Analytical Department of Forex Club Ukraine Mykola Ivchenko.
Be that as it may, in the second 6 months of 2012 the dollar may lose its positions. There are several reasons for this beginning with the predicted end of the crisis in Europe to the start of a new round of quantitative easing by the U.S. Federal Reserve System. Some experts say the Federal Reserve will renew buying T-bills even earlier than next summer, though the projected QE sum will not exceed US $500 bn. For comparison, in 2008 the U.S. Federal Reserve spent US $1.25 trillion on QE and US $600 bn in 2011. “Resorting to such a policy in the U.S. may be an instrument to counter extreme strengthening of the dollar. Such a process will influence not only foreign currencies, but also mineral markets,” says Ivchenko.
The dollar’s victorious march on the Forex market will have no impact on the dollar/hryvnya exchange rate, which is totally controlled by the National Bank of Ukraine. Despite the set of factors that is unfavorable for the Ukrainian currency – declining steel prices, growing gas prices, appreciation of the value of foreign loans, instability of foreign markets, etc. – it has all the chances of remaining stable.
“The NBU will try to support the hryvnya stabilizing exchange rate at the current level at least until the parliamentary elections,” says Head of the Financial Markets Analytical Department at ING Bank Ukraine Oleksandr Pecherytsyn, even if the NBU will have to sacrifice a large share of its reserves for this. Some sources say by the end of 2012 these reserve could fall to US $26 bn.
“The NBU currently has a reserve of US $32 bn, but approximately US $8 bn of that sum is the IMF loan, a certain share of which should be repaid in 2012. Support for the hryvnya will also be complicated by the IMF program envisaging restrictions for the minimum level of currency reserves,” says analyst at Erste Bank Marian Zablotskiy.
The hryvnia’s chances of stability could fall if Ukraine is unable to fulfill at least two tasks – namely, renewed cooperation with the IMF or re-signing of gas contracts with Russia. “With gas prices of U.S. $400 and no IMF program, the risk of devaluation for Ukraine is extremely high for the nearest 3–6 months. With our basic scenario we forecast an approximate devaluation of the hryvnya of 10% by the end of 2012. We would prefer not to mention the pessimistic variant, because the situation in 2008 and last year’s events in Belarus proved that devaluation of the national currency can become uncontrolled in combination with the destabilization of exchange rate expectations,” says Head of the Analysis and Surveys Department at Raiffeisen Bank Aval Dmytro Solohub. Chief Economist at Dragon Capital Investment Company Olena Belan says we should not expect a repeat of a similar situation this year.
If Ukraine fails to come to an agreement with Russia on the lowering of gas prices and will not renew its cooperation with the IMF, the hryvnya exchange rate may drop by 10 – 15% to UAH 9.5–10 / US $1.
FACT FILE
Stock markets in for more trouble
The losses of investors on the world stock market amounted to US $6.3 trillion in 2011. The aggregate capitalization of global business dropped 12.1% last year to US $45.7 trillion. The devastating earthquake in Japan, aggravation of the debt problems of euro zone countries and reduction of the ranking of the U.S. economy by Standard & Poor’s served as key factors that led to a crash on stock market exchanges. “The financial crisis has returned to the world economy and we are now a second global wave of recession is looming on the horizon, something many financial analysts have expected since mid-2009,” says Vladyslav Fedorov, an analyst at I-INVEST. The Ukrainian stock exchange did not manage to dodge this global trend. In 2011, the PFTS index dropped by nearly 46% and the Ukrainian Exchange index – by 41.5%.
This year, the situation could see a repeat. “The dynamics of the Ukrainian stock exchange market and the potential of growth of shares of Ukrainian companies in 2012 will depend on the trends on world financial markets,” predicts Olena Yevdochenko, Head of the Analytical Department at IG UNIVER. “And they are not likely to come out of the turbulence zone.”
“The U.S. and European countries must make repayments of huge debts this year. Most likely they will have serious problems with refinancing. The Ukrainian stock exchange will still be perceived as a derivative of the condition of the global economy and will be directly dependent on the global situation,” says Fedorov.
The growing tension between the U.S. and Iran is viewed as another risk capable of collapsing stock indices. “If the current tension develops into a military conflict, it will have an immediate negative impact on stock markets,” says Dmytro Churyn, an analyst at EAVEX Capital. Accordingly, investments in securities will also not be too promising this year.
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