Anyone else trying to save money in a depreciating curreny?

armabelle

My wife and I are saving up. We have done alright this year but now the Euro is back down to almost 1usd and we feel like we have had 10% of ours saving just wiped out from under our noses. Is it wrong to look at it like this when the Euro takes a knock like this and does anybody else feel bleak re this?

Geuze

The exchange rate of the euro against foreign currencies has no direct impact or relevance to most savers in Ireland.

Unless you have your savings held in a foreign currency?



If you are saving towards a house purchase, what matter is house prices, interest rates, etc.

The enemy of your savings is inflation, not exchange rates.

armabelle

Geuze wrote: »

The exchange rate of the euro against foreign currencies has no direct impact or relevance to most savers in Ireland.

Unless you have your savings held in a foreign currency?



If you are saving towards a house purchase, what matter is house prices, interest rates, etc.

The enemy of your savings is inflation, not exchange rates.

thanks for the positive outlook

but isn't the increase in price of housing directly related to decrease in value of the currency. As you can see the rise of house prices coincides pretty much exactly with the depreciating euro over the last 3 years.

Geuze

armabelle wrote: »

thanks for the positive outlook

but isn't the increase in price of housing directly related to decrease in value of the currency. As you can see the rise of house prices coincides pretty much exactly with the depreciating euro over the last 3 years.

Has the currency depreciated over the last 3 years?

Let us check.

See here:

http://www.ecb.europa.eu/stats/exchange/effective/html/index.en.html

Since early 2015 the euro is up.

In Nov 2013 the euro index was at 103 approx., now it is at 95.

The big fall was against the USD.

The euro is up against GBP.

Geuze

armabelle wrote: »

but isn't the increase in price of housing directly related to decrease in value of the currency.

No.

The rise in house prices is due to a lack of supply of houses.

regi3457

Geuze wrote: »

Has the currency depreciated over the last 3 years?

Let us check.

See here:

http://www.ecb.europa.eu/stats/exchange/effective/html/index.en.html

Since early 2015 the euro is up.

In Nov 2013 the euro index was at 103 approx., now it is at 95.

The big fall was against the USD.

The euro is up against GBP.

Isn't against the dollar what is important?

armabelle

Geuze wrote: »

No.

The rise in house prices is due to a lack of supply of houses.

From Investopedia

Exchange rates can drive up property and housing prices

A weak or undervalued domestic currency can be like having open-ended Black Friday sale and what is marked down is every single good, service, and asset in the country. The trick is, only buyers who can pay in the stronger foreign currency get the sale price. This attracts foreign tourists, which can can be good for the economy. However, it also attracts foreign buyers looking to scoop up cheap assets and outbidding domestic buyers for them. Foreign buyers have pushed up housing prices in nations with a weak currency. Imagine you are house hunting and suddenly you are bidding against people who are getting, say, an automatic 30 percent discount on the asking price. Even if you are not house hunting, high housing prices and and low supply affect rent as well. In 2015, local demand for housing was also very robust in numerous nations, as their central banks held interest rates at record lows in a bid to stimulate their economies. This also had the effect of pushing their currencies to multiyear lows, raising fears of a global currency war. (Read more in What Is A Currency War And How Does It Work?)



Read more: Understand the Indirect Effects of Exchange Rates | Investopedia http://www.investopedia.com/articles/forex/053115/understand-indirect-effects-exchange-rates.asp#ixzz4RwfBk95V
Follow us: Investopedia on Facebook

irish_investr

it's certainly opportunity loss! You could have gained 10% if it was placed in USD and you converted it back to euro now. But that would have been speculation. Exchange rates are unpredictable, and it might well swing back 10% in the other direction next year. One way to look at "saving in a depreciating currency" could be to be "buying low", depending on your goals.

I guess when saving, you need to consider what you're saving for - where you are going to spend it - and when. For example, savings for a vacation in the US could be in Dollar, at least partially.

Peregrinus

armabelle wrote: »

From Investopedia . . .

There's not an awful lot of foreign buyers driving up house prices in Ireland because the euro offers good value. Possibly in couple of niche areas of the market - tourist accommodation convenient to an international airport, city centre apartments, that kind of thing. But, even there, foreign buyers looking for bargains have the whole of euroland to shop in; you wouldn't expect Irish properties to be affected more than French, Italian, German, Portugese, Belgian, etc properties. And, if what you're looking for is something like a three-bedroomed semi in Kilbarrack, you can be confident that the price is not being driven up by foreigners bidding in US dollars.

In general, you should be saving in the currency in which you expect to be spending. That way, your assets and your (expected) liabilities are matched, and your exposure to exchange rate risk is minimised.

Are you in Ireland OP and are you going to buy in Ireland?

If say you were buying a house in Hungary but getting a mortgage in Swiss francs yes currency movements would be very important.

Peregrinus

regi3457 wrote: »

Isn't against the dollar what is important?

Only if you expect to use your savings to buy thing that are priced in dollars.

For example, if the savings are your retirement savings and you intend to retire to the US then, yes, by saving in euros (or any other currency that isn't the US dollar) you expose yourself to an exchange rate risk (which could work out well or badly for you).

armabelle

irish_investr wrote: »

it's certainly opportunity loss! You could have gained 10% if it was placed in USD and you converted it back to euro now. But that would have been speculation. Exchange rates are unpredictable, and it might well swing back 10% in the other direction next year. One way to look at "saving in a depreciating currency" could be to be "buying low", depending on your goals.

I guess when saving, you need to consider what you're saving for - where you are going to spend it - and when. For example, savings for a vacation in the US could be in Dollar, at least partially.

What do you mean by "buying low"?

Yes you make a good point in the last part of your post. Let me be more clear. My family and I are planning to buy a house in the next year or two. We have about 1/3 of the money saved and are hoping to make the rest by 2019. We are not sure if we will be buying a house in Ireland or some other country in the EU (we are considering Croatia or Italy or maybe even Spain)

armabelle

Peregrinus wrote: »

Only if you expect to use your savings to buy thing that are priced in dollars.

For example, if the savings are your retirement savings and you intend to retire to the US then, yes, by saving in euros (or any other currency that isn't the US dollar) you expose yourself to an exchange rate risk (which could work out well or badly for you).

Thanks for your reply. The savings are for a house purchase in the EU in the next 2-3 years.

Aren't all commodities (to some extent) pegged to the US dollar value? So if the Euro does go to 0.80 like some people say, surely the house prices will rise as foreigners will be buying up the cheap (for them who have USD) property for investment purposes?

armabelle

Deleted User wrote: »

Are you in Ireland OP and are you going to buy in Ireland?

If say you were buying a house in Hungary but getting a mortgage in Swiss francs yes currency movements would be very important.

We are in Ireland now but not sure if we will buy a house here in Ireland. We might but in all likelihood it will be in another EU country.

Peregrinus

armabelle wrote: »

Aren't all commodities (to some extent) pegged to the US dollar value? So if the Euro does go to 0.80 like some people say, surely the house prices will rise as foreigners will be buying up the cheap (for them who have USD) property for investment purposes?

To some extent, yes. But, in many cases, not to a very great extent. The proportion of buyers of homes in Ireland represented by foreigners holding USD is really very small. The price of your 3-bedroomed semi in Kilbarrack (or wherever) is to a tiny, tiny extent dependent on the value of the dollar and to a very large extent dependent on the value of the euro, which is what the vast majority of potential purchasers are seeking to buy it with.

If you save in USD and the USD rises as against EUR, you're quids in when it comes to buying a house in Kilbarrack. On the other hand, if the USD falls against the EUR, you're buggered. What that tells you is that the price of houses in Kilbarrack isn't pegged to the value of the USD.

If you could reliably predict whether the USD was going to rise or fall agaisn the EUR, you'd know which currency you are better off to save in. On the other hand, if you could reliably predict future exchange rate movements, you wouldn't need to save to buy a 3-bed semi in Kilbarrack; you'd be so rich the cost would be small change to you.

armabelle

Peregrinus wrote: »

To some extent, yes. But, in many cases, not to a very great extent. The proportion of buyers of homes in Ireland represented by foreigners holding USD is really very small. The price of your 3-bedroomed semi in Kilbarrack (or wherever) is to a tiny, tiny extent dependent on the value of the dollar and to a very large extent dependent on the value of the euro, which is what the vast majority of potential purchasers are seeking to buy it with.

If you save in USD and the USD rises as against EUR, you're quids in when it comes to buying a house in Kilbarrack. On the other hand, if the USD falls against the EUR, you're buggered. What that tells you is that the price of houses in Kilbarrack isn't pegged to the value of the USD.

If you could reliably predict whether the USD was going to rise or fall agaisn the EUR, you'd know which currency you are better off to save in. On the other hand, if you could reliably predict future exchange rate movements, you wouldn't need to save to buy a 3-bed semi in Kilbarrack; you'd be so rich the cost would be small change to you.

Do I have to predict that the dollar usually seems to get stronger against all other currencies sooner or later or is this common knowledge? It always seemed that way to me but you seem to know more than me so do you think that is not true?

Peregrinus

armabelle wrote: »

Do I have to predict that the dollar usually seems to get stronger against all other currencies sooner or later or is this common knowledge? It always seemed that way to me but you seem to know more than me so do you think that is not true?

The dollar usually seems to get stronger against all other currencies sooner or later, yes. But, equally, it usually seems to get weaker against all other currencies sooner or later. The trick is in knowing when these movements will occur, and how that will fit with your timeframe for buying a house. And neither you nor I can reliably predict that; if we could, we would be phenomenally wealthy, wouldn't we?

Have a look at this chart, showing USD/EUR exchange rates over the past 10 years. The rate has bounced around quite a bit, as you can see. True, the USD is signficantly stronger now than it was 10 years ago, but that's almost entirely due to a sharp rise over the course of 2014. Did you predict that rise before it happened? No, neither did I. On the other hand, 2009 was a bit of a disaster year for holders of USD. Did you spot that one coming? Did I?

If your period of savings for a house in USD happens to include a year like 2014, you'll do very well. On the other hand, if it doesn't include a year like 2014 but does include a year like, say, 2009, you'll be the sorry man (or woman).

There is no law of god, man or nature that says that, in the future, good periods for the USD will be more frequent or longer lasting than bad periods. As it happens, over the past five years, that has been the case. But, over the five years before that, the reverse was the case. And over the next five years? Buggered if I know.

So, if you invest today in USD to meet future liablities in EUR, you are gambling. That's fine, so long as gambling is what you want to do, and you understand that it is what you are doing.