I.In this trading week, the exchange rates suddenly came into the focus of investors. A weak dollar makes the euro appear strong, which caused stock prices to fall on the European stock exchanges on Thursday. The dollar weakness is a strategic issue that has been looming for a while, but on that day the euro climbed to a two-year high against the dollar. This happened at a moment when the positive news about vaccine developments had just paused. Suddenly the currency effect could be seen in the exchange rates.
Although a rising euro can also be interpreted as positive news for the continued existence of the monetary union, pessimism prevailed among European investors. Incidentally, the weakness of the dollar has not changed the fact that it has remained by far the most important currency in international trade. As a result, the rising euro rate against the dollar is primarily exerting pressure on share prices through the lever of the export industry. A weak dollar makes goods made in Europe more expensive for customers in America or China, so that they demand less. The export-heavy leading German index Dax in particular can feel this.
Unlike in the textbook
One consolation, however, is that this effect does not work as deterministically in practice as it does in the textbook. Economists look at the so-called price elasticity of the demand for German and European export goods. In plain language, this is about the question of why Europe’s products are popular with customers outside the monetary union. Do you order from us because it is so cheap, or is superior quality in the foreground? In the end, the decisive factor is the market position of the respective company, which investors should find out about using the annual management report.
For innovative technology leaders who can more or less dictate prices to customers, the negative consequences of the weak dollar should be limited. On the other hand, mass manufacturers, whose goods are popular internationally primarily because they are offered at low prices, are more sensitive.
It is reassuring that the German export industry has both technically reliable products and strong brands. Wealthy car buyers from emerging countries, for example, do not choose an Audi, BMW, Mercedes or Porsche because the premium models from these brands would be so cheap. The products of the German chemical or pharmaceutical industry are also enjoying huge exports because their manufacturing processes are sophisticated and the supply chains work.