Why the euro in Belarus is falling, and the dollar is rising, and when the trend will turn

We have repeatedly shared observations on the details of the financial market, which can help you navigate when choosing a personal savings strategy. What is the interest rate, and how this indicator is important for decision-making – in the material of the correspondent of the agency “Minsk-Novosti”.

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In different countries, this parameter can be called differently. In Belarus – the refinancing rate of the National Bank, in Russia – the key rate of the Central Bank, in the States – the interest rate of the Federal Reserve System. But the essence of this does not change: the refinancing rate (we will use the national definition) is the amount at which commercial banks of the country are credited from the primary source of liquidity in Belarus. Then, as needed, money enters the economy and passes its way to citizens in the form of wages, social payments and other sources of personal capital formation. Thus, the National Bank also maintains the volume of money supply in the financial system and regulates the value of money.

In fact, this is how all the central banks of the world function. They release liquidity into circulation, and by changing rates, they make the national currency more expensive or cheaper.

The last two or three months in the world there has been a tendency to increase the interest rate. The European Central Bank and the US Federal Reserve make currencies more expensive in September and October. But as interest rates rise, another significant characteristic of the global financial system changes: government bond yields increase. That's a little more detailed.

It is no secret that almost all state budgets around the world are adopted and executed with a deficit. That is, government spending almost universally exceeds revenues. This includes spending on education and health, defense and law and order. There are a lot of expenses and you have to pay for everything.

Most often, the budget deficit is covered by government loans or by issuing and placing government bonds. They have a face value, for example, 100 rubles or 100 dollars. There are deadlines – from short to long. As well as profitability – interest that is paid at a certain time, quarterly or annually. Everything is specified in the prospectus.

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After initial placement, bonds enter the secondary market and can be bought or sold by the holders of these securities as needed. For various reasons, the price of a paper (or its inverse value - profitability) may change during circulation. Sometimes very significant. In special cases, the price of a bond can fall to the lowest (so-called junk) level, but this is a critical case.

US government bonds, so-called treasuries, have the highest rating and liquidity level. But even the best papers in the world are not easy. The yield on the most popular, 10-year treasuries, soared to a 20-year high of 5.349 percent. That's after the 10-year yield was below 1% a couple of years ago.

The reverse side of the growth in the yield of American government bonds is the decrease in their price and the rise in the price of the US dollar. The main currency pair EUR / USD falls against this background to 1.116.

What does this mean for the Belarusian currency market? The main consequence was the decrease in the price of the euro in Belarusian exchanges and the softening of the EUR/USD pair in favor of the dollar. Is it possible to further develop this trend?

Until recently, the answer to this question could be yes. But on October 2, a review of labor market statistics was released in the United States, which is determining when making decisions by the Fed to change the interest rate. So, the next meeting will be held on October 28, and the statistics are worse than expected. If before the release of the report, the probability of a rate increase was 66.6%, today it is only 20.7%.

What does that mean? Probably, the EUR/USD pair will turn in the opposite direction, the euro will also become more expensive in the Belarusian market. More precisely, the trends will be formed by the end of this week.