WHY IS THE DOLLAR FALLING
Let’s start with the basics: the dollar is at its lowest level in the past six weeks. And it’s not by chance.
The U.S. government has brought tariffs back into the spotlight, this time with plans to double taxes on steel and aluminum imports. At the same time, there is intense geopolitical instability: (a) the crisis in Ukraine,
(b) turmoil in the Middle East, and
(c) escalating tensions with China.
And as we already know, markets do not like uncertainty—and they’re showing it.
Now add the new proposal from Congress to impose taxes on investments from countries considered “tax-hostile,” and we have the perfect recipe for capital flight from the U.S.
The dollar is weakening. And as if all that weren’t enough, the European Central Bank is moving ahead with new interest rate cuts, but instead of the euro falling… it’s rising!
THE RISE OF THE EURO
Why?
Because many large investors appear to be pulling funds out of American assets and moving them back to Europe. The strengthening of the euro isn’t due to monetary policy, but to a broader rebalancing of investment flows and the growing uncertainty surrounding the U.S. The euro has risen over 11% since the beginning of the year, while the dollar has fallen by nearly 10%!
It’s telling that even with the prospect of further ECB rate cuts, the euro is gaining strength. This suggests that investors believe Europe now offers a more stable macroeconomic environment. Additionally, Germany is planning a massive public investment package, further reinforcing Europe’s image as an attractive investment destination.
INVESTMENT-WISE
And now the big question: What does all this mean for us, who get live in Europe and have Euro as a primary currency?
Folks, it means three very good things:
Greater purchasing power.
When the dollar is cheaper, our euros buy more U.S. stocks or ETFs. It’s like getting a discount from the U.S. markets. This is a golden opportunity for Europeans to invest in American assets.Double profits in the future.
If the dollar strengthens again in the future, we profit both from the investment's performance and from the exchange rate. When we cash out, we’ll get back more euros than we originally invested. Win-win. This is what’s called “currency arbitrage,” and it can pay off very well—as long as we’re patient.A long-term opportunity.
We don’t know when the dollar will recover. But if we have a long-term horizon and invest in strong assets like the S&P 500, the exchange rate risk smooths out. And in the long run, we almost always come out ahead.
Posted Using INLEO