Over the past year, the Euro has fallen by 15.65% against the dollar, from $1.19 per EUR1 last year to $1.0038 per EUR1 today. This is the lowest level the Euro has ever traded against the U.S. Dollar.
This historic decline has occurred for several reasons:
If you invested in the U.S. markets last year, and are based in the Eurozone, then chances are some of your stocks have earned profit even if the share price has fallen, which is good news.
If you bought a share in a U.S. listed software company for $1.19 last July this would have cost you EUR1. The share price remains the same, but you sell it today. With the current conversion rate, this would give you around EUR1.19. If the company's share price fell to $1.10 before you sold, you would still earn a return of EUR1.10 purely because the dollar strengthened.
The issue is that investing in the U.S. markets is now more expensive for investors based in Eurozone countries. That same software company you invested in last year now costs EUR1.19, even though the share price never changed. The second risk is the potential strengthening of the Euro against the dollar over the coming months or years. This lowers the future returns for investors.
You buy a share in a mining company for $1, costing you roughly EUR1. If the Euro climbs to $1.10 over the coming months, your investment is worth EUR0.91 if the share price remains the same. Therefore, share price returns have to be higher to justify this investment.
A weakening/ strengthening Euro mainly raises risks in the short to medium term, which is why it is important to have a long-term outlook when investing. When buying and holding stocks for 10+ years, you lower your exposure to currency fluctuations.
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