Dollar collapse fuels Russian inflation

The Federal Reserve's pessimistic outlook for U.S. growth in 2008 has weighed on the U.S. dollar, which has fallen to fresh lows against the Euro.

Growing concerns about the state of the American economy has already weakened the greenback.

And its latest slump follows rumours the U.S. Federal Reserve will continue its policy of cutting interest rates in a bid to stimulate growth.

But lower rates means the dollar becomes less attractive for currency investors.

Trust Bank director Evgeny Nadorshin says many currency traders are rethinking their strategy.

“Most of the investors are really disappointed with the figures, with the information, with the economic data from the United States,” Nadorshin said.

This week the dollar reached its lowest point against the Euro, as well as a two-year low against the Japanese Yen.

And it's also broadly slumping against other major currencies, including sterling and the Russian rouble.

How it affects Russia

Further depreciation of the dollar will cause the price of crude to rise even higher. Oil is already around the psychologically-significant $US 100 per barrel mark.

Analsyst say higher prices will be both good and bad for Russia.

Economist Vladimir Osakovsky of Aton Capital Group says the Russian economy is highly sensitive to fluctuations in the price of oil.  

“If oil prices increase than the export revenues will also increase and this of course will boost overall growth. But on the other hand, big inflows of dollars into Russia generate and create inflationary pressures,” Osakovsky said.

Russia is has already seen inflation soar because of oil money pouring into the country.