How exchange rates trend?

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Maris61
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Joined: Sat May 02, 2020 1:49 pm

How exchange rates trend?

Post by Maris61 »

For folks who need to transfer a large amount of dollars to euros—several thousand—is there any prevailing wisdom as far as how exchange rates trend? In other words, since I have some flexibility in terms of when I’d need to transfer (could be months out), is wait and see an advisable approach to see if rates go even more in favor of the dollar?

Or are timing attempts with currencies equally as fraught as timing the stock market? I.e. not recommended.

Any addl. recommended exchange services on par w/ Wise or Currencies Direct?

If there are already some recommended threads on this, please feel free to share.

Thank you,
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grabiner
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Re: How exchange rates trend?

Post by grabiner »

The market can predict a change in rates, but you can't benefit by timing it.

Suppose that the one-year dollar bond rate is 3.00% and the one-year euro bond rate is 5.06%. This means that the market is expecting the dollar to rise 2% against the euro, so that a dollar investor would only break even by converting now, buying a euro bond, and then converting back to dollars.

If the reason you need to convert dollars to euros is that you will be spending the euros, converting earlier is better because it reduces the risk. You can invest the euros in something that will track expected euro inflation until you need to spend them. In contrast, if you invest in US TIPS and then convert to euros later, you will lose purchasing power if European inflation is higher than expected while US inflation is not.
Wiki David Grabiner
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asset_chaos
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Re: How exchange rates trend?

Post by asset_chaos »

I suspect trying to time fx is even more fraught than trying to time the stock market. If you need/want a certain amount of euros to spend later from your dollars today and the current exchange rate does that, then convert now. That's called achieving your primary goal.

I live outside the US and have used Wise regularly for 3 or 4 years. I can say it is easy to use and is inexpensive. Others say Interactive Brokers has the best rates, but the description always seems a little more complicated to set up and use than I care for. If the amounts I move were large and regular, I'd investigate IB more. But as I move ad hoc amounts in the single thousands of $, easy to use and inexpensive enough (circa 0.6% for US-Australian dollar pair), is good enough for me. Use the board search box and you'll find many threads discussing services for moving money to and from the US.
Regards, | | Guy
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