The dollar's descent
A special comment by Piotr Kuczynski, director of the Analysis and Consultancy Department, Warsaw Investment Group S.A.
Since August 2004, the dollar, following a half-year adjustment, has continued to fall against the major world currencies. This resulted in its weakening against the euro and it is now at its lowest level since the latter's debut in January 1999.
The final result of the US presidential election had a direct weakening impulse on the American currency. By cutting taxes, fighting the war in Iraq, and increasing expenditures in the arms industry and safety sectors, the Bush administration has greatly contributed to the growth of the budget deficit. Despite the President's current promises, this trend will continue. Apart from that, US imports exceed exports (especially from China) by a considerable amount, which contributes to the current turnover deficit. Financial markets are increasingly worried.
Limiting competitiveness
The weakening dollar has a double natured effect. On the one hand, it helps American exporters, who are becoming more and more competitive. At the same time, unemployment is exported to the countries where currencies are getting stronger (particularly in Europe). On the other hand, exporters of products that are usually valued in the American currency are increasing their prices, thus causing worldwide inflation to grow. This situation poses a greater threat to the USA than to the European Union. A strong euro ensures relatively minimal growth in prices and prevents inflation, but at the same time it limits exports' competitiveness.
The graphs showing the USD/JPY, EUR/USD and USD/PLN currency rates all predict that the dollar should grow weaker in the long-term (12 months). The RGR formation shows that the Japanese currency will get stronger, moving towards the level of 95 yen to the dollar; the euro will be heading for $1.6; and the złoty should even reach the level of three złoty to the dollar. Now everything depends on the pace at which the dollar will weaken. A rapidly falling dollar will be harmful for the world's economy. If it takes years to fall, the economy will adapt gradually and thus avoid an even bigger shock.
The złoty effect
In Poland, as in other EU countries, the weak dollar has a dual effect. First of all, Poland's major trading partners in both import and export come from euro countries: Germany, Italy and France. The one exception is Russia-the leading exporter of power resources to Poland. The bulk of transactions with foreign partners is conducted in euros, and the interest of this currency has additionally grown after countries from Eastern and Central Europe joined the EU. Some suppliers and recipients from the East also prefer the euro due to the weakening of the dollar on the international markets. However, the dollar is still dominant in accounting the resources trade.
Thanks to this situation (and the strengthening of the złoty), Poland is avoiding oil price increases, defending its economy from the "oil shock." From the beginning of this year to October, the price of one barrel (Brent oil) had grown from $30 to $52. The influence of this price increase on the price of petrol in general was lessened through lowering the rate of the dollar to the złoty, from four złoty to the dollar in April to 3.30 at present, which is the lowest rate in seven years. In this way the Polish economy has managed to escape inflation growth and strict actions on the part of the monetary authorities. However, Polish exporters-especially the minor ones-who do their accounts in dollars remained aggrieved. Their situation has become serious indeed and the profitability of conducting exports in dollars has been questioned.
Since August 2004, the dollar, following a half-year adjustment, has continued to fall against the major world currencies. This resulted in its weakening against the euro and it is now at its lowest level since the latter's debut in January 1999.
The final result of the US presidential election had a direct weakening impulse on the American currency. By cutting taxes, fighting the war in Iraq, and increasing expenditures in the arms industry and safety sectors, the Bush administration has greatly contributed to the growth of the budget deficit. Despite the President's current promises, this trend will continue. Apart from that, US imports exceed exports (especially from China) by a considerable amount, which contributes to the current turnover deficit. Financial markets are increasingly worried.
Limiting competitiveness
The weakening dollar has a double natured effect. On the one hand, it helps American exporters, who are becoming more and more competitive. At the same time, unemployment is exported to the countries where currencies are getting stronger (particularly in Europe). On the other hand, exporters of products that are usually valued in the American currency are increasing their prices, thus causing worldwide inflation to grow. This situation poses a greater threat to the USA than to the European Union. A strong euro ensures relatively minimal growth in prices and prevents inflation, but at the same time it limits exports' competitiveness.
The graphs showing the USD/JPY, EUR/USD and USD/PLN currency rates all predict that the dollar should grow weaker in the long-term (12 months). The RGR formation shows that the Japanese currency will get stronger, moving towards the level of 95 yen to the dollar; the euro will be heading for $1.6; and the złoty should even reach the level of three złoty to the dollar. Now everything depends on the pace at which the dollar will weaken. A rapidly falling dollar will be harmful for the world's economy. If it takes years to fall, the economy will adapt gradually and thus avoid an even bigger shock.
The złoty effect
In Poland, as in other EU countries, the weak dollar has a dual effect. First of all, Poland's major trading partners in both import and export come from euro countries: Germany, Italy and France. The one exception is Russia-the leading exporter of power resources to Poland. The bulk of transactions with foreign partners is conducted in euros, and the interest of this currency has additionally grown after countries from Eastern and Central Europe joined the EU. Some suppliers and recipients from the East also prefer the euro due to the weakening of the dollar on the international markets. However, the dollar is still dominant in accounting the resources trade.
Thanks to this situation (and the strengthening of the złoty), Poland is avoiding oil price increases, defending its economy from the "oil shock." From the beginning of this year to October, the price of one barrel (Brent oil) had grown from $30 to $52. The influence of this price increase on the price of petrol in general was lessened through lowering the rate of the dollar to the złoty, from four złoty to the dollar in April to 3.30 at present, which is the lowest rate in seven years. In this way the Polish economy has managed to escape inflation growth and strict actions on the part of the monetary authorities. However, Polish exporters-especially the minor ones-who do their accounts in dollars remained aggrieved. Their situation has become serious indeed and the profitability of conducting exports in dollars has been questioned.
