Ride of the Euro Coaster: What You Should Know

Last Updated: 13. November 2023By

Last fall, the euro fell below parity against the US dollar. The weak euro sparked a heated debate. Investors were increasingly insecure, worrying that the weak eurozone could have a negative effect on their investments.

Since then, a lot has happened. In the spring, the euro celebrated a comeback, only to disappear again in the summer. In early October, the European currency reached its lowest level since December of last year with 1.0453 dollars.

Afterwards, a small ascent began. At the beginning of November, the euro was quoted at 1.0756 dollars, so it had appreciated by around three cents. The downward trend seems to have been broken.

According to tagesschau.de, the euro’s strength this time could be more than a flash in the pan and of longer duration. Experts explain the euro’s strength with a dollar weakness and much speaks for the dollar remaining weak in the coming months.

Reasons for the dollar weakness include the fact that the US central bank, the Fed, will no longer receive monetary policy support in the coming months. The Fed had recently raised interest rates, partly in jumbo steps. Now signs are increasing for a rate peak.

In the wake of the last Fed rate decision, expectations of further rate hikes by the US central bank have been gradually priced out of the market, according to tagesschau.de.

In addition, a look at the bond markets supports the assumption that the US currency guardians will not raise rates any further. The yield on 10-year US government bonds had recently risen above the 5% mark for the first time since 2007.

Thus, without the intervention of the Fed, inflation is being fought. That the bond market has taken the work off the Fed was recently admitted by Fed Chairman Jerome Powell. In addition, the US labor market has cooled significantly – further rate hikes due to an ongoing overheating of the labor market are therefore also off the table.

Rate cuts expected for 2024 According to tagesschau.de, the FedWatch tool of the CME Group assumes that the same interest rate will be decided at the next central bank meeting. For next year, a cut in the interest rate is already expected. „What’s new is that the futures markets are expecting the first rate cut already for the May 2024 meeting,“ explains Robert Rethfeld, market expert from Wellenreiter Invest, on tagesschau.de.

Why a strong euro is beneficial to you A strong euro means more prosperity for the citizens of Germany. Business travelers and tourists visiting the United States can look forward to a cheaper stay.

In addition, consumers and companies that purchase goods and raw materials from non-eurozone areas have to pay less in euros.

Heating oil customers and drivers also have a reason to be happy, as oil is traded in dollars and becomes cheaper due to the dollar weakness. The inflation rate could continue to decline here, as the so-called imported inflation decreases.

How to adjust your investment strategy Euro strength, dollar strength, rising bond yields and much more play an important role in a clever investment strategy. Keeping up with the latest developments is extremely time consuming.

That is why we recommend that you take professional support. Let the experts from Sicheres Geld, the advisory letter for critical investors who want active asset protection, do the research and analysis. Readers of Sicheres Geld are convinced of the expertise. The recommendations have helped to protect the assets and increase them despite the crisis in the past two years.