Tag Archives: Currency

Investment chances playing with currencies

Currencies exchange rates wallboard

Exchange rate between Euro and Dollar is far from being stable. When the Euro began in the markets, the exchange with the Dollar was 1,15. Then it dropped till 0,85 in October, 2000; but it jumped till 1,60 in the summer of 2008. The rate for 2013 has been between 1,27 and 1,38, what is also quite volatile.

A strong Euro or a weak Dollar has, as usual in markets, both good and bad consequences. The strength of a currency shows the confidence that investors have in the economy. It also shows the outlook that investors have in the revenues of their investments. In this case, the look should be focused in the interest rate. The highest, the better, in comparison with the other currency. ECB has kept a higher rate than the Fed and that explained partly the strength of the European currency against the greenback. But the Fed did also its work to push this trend. The quantitative easing, that means, the massive money printing of Dollars, operated also as a reduction of the interest rate.

The economic effects of a weak Dollar are several. European industries enjoy fewer costs from imports and commodities, as they are cheaper; European tourists find also cheaper have holidays in the US. Against that, exports are more difficult and Europe receive fewer US tourists.

But what about finance markets? A weak Dollar supports buys in US markets, as they are cheap, but the investment returns are lower when they are converted into Euros. However, listed companies with an export-focused business get more revenues. For an investor, these companies have more chances not only to increase the value of their stocks, but also share dividends. In other perspective, it is interesting for an investor to have a diversified portfolio with securities in Dollar and Euro to protect from exchange risks.

Dollar is now weak, as the Fed has promoted this policy to cheer up the economy and the employment. But this weakness is far from meaning that the greenback is living a decline. The US currency is still the reference as a reserve.

Although the future is impossible to predict, experts and analysts tend to think that Euro will weaken against Dollar in 2014. The current ECB policy and the possible tapering of the QE by the Fed open new chances for investors, as European securities will be cheaper for foreigners in a strong contexts for the stock exchanges, following the increases of European indexes.