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Euro exchange rate trend: Is it a good time to buy euros?

2022-08-08

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In addition to Europe being a frequent tourist destination for Taiwanese, the euro is also the world's second largest foreign exchange reserve currency, so the euro is the first choice for many people to invest in foreign exchange.

Want to invest in the euro but don't know enough about its movements? Do you know how to change the exchange rate of Taiwan dollar to euro? This article will take you to understand the big and small things about the euro exchange rate!

Introduction to the Euro

Euro (Euro) is the official currency of nineteen countries in the euro zone, including Austria, Belgium, Finland, France, Germany, Italy, the Netherlands, Portugal, Spain, ... and other EU countries, currently used by at least 330 million people worldwide Euro, the currency code of the International Organization for Standardization ISO4217 is EUR, and the currency symbol is €.

Second only to the U.S. dollar, the euro is currently the second most traded international currency in the world. It is often used by governments or institutions in many countries as a currency for foreign exchange reserves, and is the currency for trading commodities such as oil and gold in the international market. , the total value of cash in circulation in the euro has exceeded the dollar.

Image credit: Pixabay (martaposemuckel)

Why buy euros?

Many people think that if you can't go abroad now, it's useless to buy foreign currency, right?

In fact, foreign exchange has always been a popular investment tool for beginners in Taiwan, because the threshold for foreign exchange investment is much lower than that of stocks and funds, and investors do not need to worry that they do not know the financial report, and cannot accurately assess the stock price or the corporate risk of individual companies. .

Foreign exchange investment is easy to learn, especially the euro, which is familiar to Taiwanese, is one of the most widely circulated currencies in the world. As long as you observe the trend of the euro exchange rate a little, even if you do not have solid investment knowledge or skills, you are still suitable for foreign exchange investment.

Just like many tourists before traveling to Europe, they will study the exchange rate of Taiwan dollar to euro, understand the factors that affect the exchange rate change, and then decide when to exchange for euro. The foreign exchange investment process is just as simple.

In addition to beginners investing in foreign exchange, people who usually invest in stocks or bonds often use foreign exchange investment to reduce risks.

Is it a good time to buy euros?

When is the right time to buy euros? In fact, this question is completely wrong!

If you buy euros for investment, not for local consumption, then you should ask, should you buy euros now to buy up or down?

Because foreign exchange investment mainly looks at the trend, whether it is long or short, as long as you bet in the right direction, you can make a profit, and it is suitable to buy 24 hours a day at any time. Next, I will tell you the trend of the euro exchange rate and the factors that affect the trend of the euro to Taiwan dollar.

Euro exchange rate trend

In terms of the real-time exchange rate of the euro, currently 1 euro can be exchanged for about NT$30.67, or US$1.02. Although it has risen slightly in the past few weeks, this year due to the energy crisis and inflation, the euro has actually reached 20. This year's new low is almost the same as the dollar.

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The euro has lost more than 10 percent against the dollar this year, and many analysts are pessimistic that further losses may lie ahead.

The reason for such a sluggish economy has to do with the disruption of Russia's energy supply to Europe, which threatens the survival of German industry in particular, with Credit Suisse and Goldman Sachs both predicting that the euro zone will enter a recession within the next six months.

The ten-year trend of the euro exchange rate

Image credit: XE

Judging from the above historical exchange rate chart of the euro, after the financial crisis, the euro entered a period of strong shocks. In order to avoid a disintegration crisis, the European Central Bank announced an unlimited bond purchase plan, and boldly launched a negative interest rate policy to support the stabilization of the euro. , although it reached an all-time high of $1.38 in March 2014, it has not exceeded $1.25 since November of the same year.

From a price perspective, the euro has performed worse this year ($1.02) than its low of $1.20 in 2012, when high debt levels and soaring bond yields led to speculation that the region was likely to unravel.

But the European Central Bank has stepped up to rein in markets, so few experts now believe the euro zone is headed for another existential crisis like the one it was a decade ago.

Factors that affect the exchange rate of the euro

In the foreign exchange market, the exchange rate is the indicator that can most directly reflect the direction of global capital flows, and the fluctuation of the euro exchange rate is not only determined by the economic conditions, geopolitics, and interest rate changes in the euro area. As the world's second largest economy, the euro It is even more inseparable from the international economic situation.

ECB monetary policy

The one-year forward spread between the U.S. dollar and the euro area often moves in step with the EUR/USD exchange rate. The European Central Bank's rate hike in 2022 is much lower than that of the Federal Reserve, which has widened the interest rate gap between Europe and the United States. Therefore, relative to the strength of the US dollar, the euro is currently trending weaker. In July this year, the Fed has raised interest rates by another 75 basis points, while the European Central Bank only raised interest rates by 50 basis points.

In addition, in June this year, the Fed began to reduce the size of its balance sheet and tighten market funds, but the European Central Bank has not yet followed, which may also be the reason for the weakening of the EUR/USD exchange rate.

Eurozone political risk

In recent years, the trend of the euro zone is inseparable from the political situation, such as Brexit, the Ukraine-Russian war, and then the Italian election in September. Changes in bond prices will make the work of the European Central Bank more difficult. It is more complicated and more difficult to intervene in the market trend.

The state of the Eurozone economy

Currency depreciation is related to slowing growth in the euro area and soaring inflation. Affected by rising energy prices and the depreciation of the euro, the cost of imported energy in the euro area has further deteriorated. The inflation rate of the 19 member states of the euro area has reached a record high, reaching 8.9%.

In terms of overall data performance, sluggish economic growth, sluggish consumer price index, and rising unemployment all make experts worry about the euro situation.

How does the exchange rate of the euro affect Taiwan?

The relationship between the European economy and Taiwan may seem small, but in fact there are several points worthy of attention:

First of all, the depreciation of the euro is good news for people thinking of vacationing or spending in the European region, while for those whose salary is in euros, traveling or spending abroad will become more expensive.

Furthermore, European companies that are mainly export-oriented, especially large exporting countries like Germany, will make their exports more attractive due to the depreciation of the euro, because the buyer's currency value is higher, which will also benefit Taiwan. Imports from Europe are detrimental to exports to Europe. Therefore, the annual growth rate of Taiwan's exports to the EU will decline this year, while the annual growth rate of imports will increase rapidly.

The above information is provided by special analysts and is for reference only. CM Trade does not guarantee the accuracy, timeliness and completeness of the information content, so you should not place too much reliance on the information provided. CM Trade is not a company that provides financial advice, and only provides services of the nature of execution of orders. Readers are advised to seek relevant investment advice on their own. Please see our full disclaimer.

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