The cut in official rates decided by the European Central Bank opens the door to a possible weakening of the single currency due to the greater quantity of money placed on the market. The dollar could benefit above all, considering that on the other side of the Atlantic there is no rush to start monetary easing in the face of inflation that remains about one point higher than that of the Eurozone.
So it may be useful to do a check-up of your portfolio to understand if it is adequate for the new context that is emerging.
Bini Smaghi: “If prices slow down, two more cuts in ECB rates by the end of 2024”
by Eugenio Occorsio
07 June 2024
Currency forecasts
Second Kevin Thozet, member of Carmignac’s Investment Committee, says it is increasingly likely that the Fed will remain on hold until the end of the year, thanks to the desire to stay out of the political battle for the presidential elections, which will take place in November. In this scenario, there is the possibility that the rate differential could double to 2% (double the current one), thus leading to a strengthening of the dollar against the euro and a new wave of inflation in Europe, given that the raw materials are almost all traded in the US currency.
He sees the possibility of a euro under pressure in the coming months Ubsalbeit not in the very short term, and leans towards a strong greenback too Hsbceven in the event of a widening of the deficit in the USA.
Furthermore, he underlines Arif Husain, chief investment officer of T. Rowe Price, exposure to the US dollar “allows you to benefit from a hedge against a smaller decline in risk assets, which could be triggered by greater concern linked to the Middle East or a series of delicate geopolitical situations”. The US dollar tends to act as a safe haven and to benefit from it in these types of situations characterized by a low appetite for risk.
How to invest to aim for the super dollar
Having said that, the best way to bet on the strengthening of the greenback is buy dollar-denominated assets. This is the case of Treasuries (US government bonds), Wall Street shares or raw materials. In all these cases, the recommendation for the small investor is: Find out about commissions first provided for these operations by your broker.
Alternatively, or in addition, you can take a position in the same direction by purchasing a dollar fund or ETF, which perform the same function, but enjoy greater diversification of the underlying assets. With the first solution being more expensive in terms of commission, but faced with constant movement of the portfolio by a professional manager.
Another possibility is to purchase securities or assets denominated in euros, but which generate a large part of their revenues in dollars. In Piazza Affari there are several stocks displayed in this sense, especially those in the luxury sector, such as Brunello Cucinelli, Moncler, Salvatore Ferragamo and Tod’sindustrialists like Buzzi Unicem and Prysmianas well as technology stocks such as StMicroelectronics and the realities related to the oil business such as Eni.
ECB, when rates are not enough
by Walter Galbiati
07 June 2024
Pros and cons of monetary investment
Pulling the threads of the reasoning, a doubt remains: is it appropriate for a saver/small investor to dedicate a portion of their portfolio to a currency different from their own? “The inclusion of a currency component introduces another risk, precisely that linked to the exchange rate, but it can help improve returns: fixed income securities in dollars on average offer 1.5% more than those denominated in euros “, explains Francesco Castelli, head of bonds at Banor. However, it is also true that the diversification, both for asset classes, as well as for maturities and even currencies, can help reduce the overall risk of a carefully planned portfolio. In conclusion, “generally, for those with a conservative profile we can hypothesize an exposure value of no more than 25%, without prejudice to the fact that each investor has his own story in terms of risk tolerance level and time horizon”, concludes Castelli.
