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Interview given to Pro Finance by Michael Woolfolk, chief currency strategist at Bank of New York Mellon. 18.01.2008.

The recent situation on financial markets is characterized by high volatility. How long do you think this period of high volatility will last?

In foreseeable future (during the year - ProFinanceService.com) the market will remain under pressure as market participants have quite diverse opinions about the outlook on US economy and global economy.

Do you think the US economy recession fears will materialize?

At the moment I don't think this is the core scenario but there is a 50% chance of recession, to be more specific there is 45% chance of "mild" recession this year.

Do you think that economy slowdown will have negative effect on emerging economies?

Yes, but it depends on the countries you are speaking about. Major emerging economies included in MSCI Emerging Market Index (ProFinanceService.com: Morgan Stanley Capital International Emerging Markets Index is a stock market index of emerging countries calculated based on the equities of over 700 companies from the following countries: Argentina, Brazil, Chili, China, Columbia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Turkey and Venezuela) remain dependent on G7 countries and interested in their investment flows. Also G7 countries economies affects net exporter emerging countries. However the small emerging economies such as Columbia, Panama, Kazakhstan, Vietnam, and Egypt are unlikely to be affected and will perform relatively independently. Current low P/E levels that exist in these markets and high level of returns will continue to whet investors' appetite this year, which will help to avoid correlation with other markets performance.

What actions do you think policy makers can adopt to stabilize the situation in financial markets? Or maybe there are some other factors that can be helpful in stabilizing it?

Policy makers and G7 countries are doing everything that can be expected in the current situation to fight collapse and housing bubble in the US. Certainly it will take some time to resolve the problems in the mortgage market and we also need fiscal and monetary stimulus Bernanke was talking about yesterday that gained support of President Bush several minutes ago. These actions will be helpful in addressing the current financial crisis and minimizing further slowdown of both US economy and global economy.

How do you assess Eurozone economy perspectives and ECB rates perspectives?

We expect that the Eurozone economy will slow down to 1.5%; the ECB will keep the interest rates at the current level till the year end unless the current round of negotiations between companies and labour unions triggers upward spiral wage inflation.

Is the market optimistic about the further perspectives of euro/dollar growth rates? Do you think expectations of further federal funds rate cut in January are already priced in the market?

I think that the expectations have already been priced in euro/dollar, and now the market is starting to price the further rate cut that will occur in the first part of the year. Data on monetary policy and wages will have special meaning for euro, in particular, those that reflect changes in inflation pressure. Bank of New York Mellon expects euro/dollar growth to $1.50 in three months.

Mr. Woolfolk was interviewed by Dmitry Khrabrov ProFinanceService.com