Author`s name Olga Savka

Dollar Gets the Go-Ahead

The most powerful growth was registered on Tuesday

Yesterday, the American dollar experienced one of the most impressive rallies on the global money market against its major competitors. The speech from Federal Reserve chief Alan Greenspan was filled with optimism about the development of the American economy. In addition to it, the Bank of Canada unexpectedly cut its interest rates.

The most powerful growth was registered on Tuesday in USD/CAD (maximum C$1.3931) - it made up 1.5 percent. To analysts' surprise, the Bank of Canada reduced interest rates by  25 points - to three percent per annum. Therefore, the interest rates differential on Canadian and American assets was reduced, which was very good for the US dollar. "One may say, the Central Bank still expects the further growth at the end of 2003 - the beginning of 2004, if the data do not become very negative. This gives a reason to believe that the Bank of Canada will not be changing rates at the next meeting," one of the market members said.

However, the most important event of Tuesday was the speech from Federal Reserve chief Alan Greenspan. "Greenspan continued to argue that fundamentals - easier credit conditions, federal stimulus and highly accommodative monetary policy have laid the groundwork for recovery," said Maury Harris, chief US economist with UBS Investment Research.

Greenspan's speech was like a proof that interest rates, which are currently on the lowest level in recent 45 years, will not be cut anymore for a long period of time. "The dollar's strength is reflective that there is an underlying shift going on in the marketplace, where funds are moving out of bonds and into equities as investors tweak their expectations for economic growth," Greg Anderson, currency strategist at ABN Amro Bank in Chicago said.

As a result, investors are again interested in riskier assets. The euro, as well as Australian and Canadian dollars are experience a very sad period at the moment, although those countries' currencies, assets and bonds have been recently considered to be the zone of safety. "The equity story continues to dominate," said David Mozina, strategist at Bank of America. "It is just a confirmation of the strong correlation between the dollar and the bond yield, that we have been having for latest weeks."

ForexPF for PRAVDA.Ru