The euro’s reference rate against the U.S. dollar rose about 0.38% in a day, making the euro cost of a dollar bill of the same amount slightly lower.
If you hold euros and need to pay in dollars soon, a recent rebound in the exchange rate can easily leave you hesitating: should you lock in your budget now, or keep bearing the volatility in hopes of getting a better exchange rate? How much support does Europe’s continued growth offer for the latter option?
The European Central Bank’s reference rate on the 30th was $1.1172 per euro, up from $1.1130 the previous day. At these two rates, the same dollar expense would require about 0.38% fewer euros. Actual transactions will also include spreads and fees, so the reference rate should not be treated as an executable quote.
However, the Eurostat GDP release on the 30th showed that the eurozone’s preliminary, seasonally adjusted GDP grew 0.4% quarter over quarter at the start of the third quarter, down from 0.6% in the second quarter. Continued growth and accelerating growth are not the same thing, and preliminary figures may be revised. This data is not enough to guarantee that the exchange rate will keep improving, nor can the same-day rebound be attributed to it on that basis.
Exchanging money in advance for a known expense can reduce budget volatility, but it also means giving up the benefit of any subsequent euro appreciation. Keeping the funds in euros preserves the possibility of gains while leaving you exposed to the risk that your dollar bill will become more expensive. If subsequent growth revisions and exchange-rate movements no longer support the original view, the rationale for maintaining that exposure should also be reassessed.
This content participates in Binance Square’s Content Mining program. The author may receive platform commissions and engagement rewards.
Sources: European Central Bank, Eurostat. Not investment advice.
If you hold euros and need to pay in dollars soon, a recent rebound in the exchange rate can easily leave you hesitating: should you lock in your budget now, or keep bearing the volatility in hopes of getting a better exchange rate? How much support does Europe’s continued growth offer for the latter option?
The European Central Bank’s reference rate on the 30th was $1.1172 per euro, up from $1.1130 the previous day. At these two rates, the same dollar expense would require about 0.38% fewer euros. Actual transactions will also include spreads and fees, so the reference rate should not be treated as an executable quote.
However, the Eurostat GDP release on the 30th showed that the eurozone’s preliminary, seasonally adjusted GDP grew 0.4% quarter over quarter at the start of the third quarter, down from 0.6% in the second quarter. Continued growth and accelerating growth are not the same thing, and preliminary figures may be revised. This data is not enough to guarantee that the exchange rate will keep improving, nor can the same-day rebound be attributed to it on that basis.
Exchanging money in advance for a known expense can reduce budget volatility, but it also means giving up the benefit of any subsequent euro appreciation. Keeping the funds in euros preserves the possibility of gains while leaving you exposed to the risk that your dollar bill will become more expensive. If subsequent growth revisions and exchange-rate movements no longer support the original view, the rationale for maintaining that exposure should also be reassessed.
This content participates in Binance Square’s Content Mining program. The author may receive platform commissions and engagement rewards.
Sources: European Central Bank, Eurostat. Not investment advice.
