Status: 11/17/2021 4:20 p.m.
The euro is cheaper than it has been since summer 2020. This holds great opportunities for German companies and investors. However, drivers are left behind.
Investors had to pay $ 1.1270 for one euro in the middle of the week – as little as since the summer of last year. The euro is currently in a difficult position, especially after ECB President Christine Lagarde announced to the European Parliament’s Economic Committee at the beginning of the week that the European Central Bank would stick to its expansionary course. Lagarde once again did not want to hold out the prospect of a key rate hike for 2022. She preferred to invoke the narrative that the current high inflation rates are a temporary phenomenon.
US interest rate turnaround on the march?
Monetary policy in the USA and the euro zone is therefore likely to diverge for the foreseeable future. Especially since last week the US inflation rate for October was surprisingly high at 6.2 percent.
Since then, there has been increasing speculation in the markets that the US Federal Reserve (Fed) could turn the interest rate screw in the coming year. Fed member James Bullard recently urged the Federal Reserve to tighten monetary policy.
Three rate hikes by February 2023
The rising US interest rate expectations are strengthening the back of the dollar. US President Joe Biden recently gave the greenback an additional boost when he made fighting inflation a top priority.
“The market is assuming that the key interest rate in the USA will be raised in the second half of next year,” explains Commerzbank foreign exchange expert Antje Praefcke.
“According to the CME Group’s Fed Watch Tool, the third rate hike has already been priced in for the Fed meeting on February 1, 2023 – following previous rate hikes on June 15, 2022 (first step) and November 2, 2022 (second step)”, emphasizes market expert Robert Rethfeld from Wellenreiter-Invest.
How the DAX benefits from the weak euro
The weakness of the euro is therefore primarily a dollar strength, as the greenback recently posted strong gains against other important currencies such as the Swiss franc and the Japanese yen.
This is good news for German export companies, as a favorable euro / dollar exchange rate increases the demand for German products in the dollar area. This is evident not least from the rising prices of companies listed in the DAX. The leading German index has rushed from record high to record high in the past few days. It was not until Wednesday that he set a new record at 16,284 points.
Why investing in US stocks is more worthwhile
Recently, however, investors drove even better than with an investment in the DAX with an ETF on the American S&P 500 – not least thanks to positive currency effects. A look at Apple shares is an example of how much currency developments can provide investors with an additional source of income.
For example, papers of the iPhone group in dollars could gain around 21 percent in the past six months. In euros, the increase was 32 percent. The positive foreign exchange effect for an investor from the euro area thus amounted to an impressive eleven percentage points for this period.
A similar argument can be made with regard to the gold price: the precious metal recently hit a new all-time high in euros. In dollars, it is still around eleven percent below its all-time high from autumn 2020.
Petrol price just below record high
Meanwhile, the strong dollar also has negative effects for consumers. Now that the US is finally allowing – vaccinated – Europeans to enter the country again, they can buy less with their euros there.
Consumers also feel the weak euro negatively at the petrol station or when they pay for heating oil. Against this background, it is hardly surprising that the last fall in oil prices – in dollars – at the petrol pumps in Germany did not bring any relief. According to the ADAC, a liter of E10 cost a nationwide daily average on Tuesday 1.692 euros. At the record price from 2012, this was just 1.7 cents short.