On July 11, the U.S. dollar index once rose to 108.26, hitting a new high in nearly 20 years. The euro once fell to 1.0032 against the dollar, continuing to hit a new low since 2002, as energy supply problems and economic recession risks put pressure on the outlook for the euro zone, while risk aversion drove the dollar to generally rise.
The exchange rate of the euro has weakened mainly because the market expects European economic growth to slow down, which has led to continued cooling of market expectations for the European Central Bank to raise interest rates. Previously, the European Central Bank hoped to curb inflation by raising interest rates, but was also worried that raising interest rates would lead to increased debt pressure in some southern European countries, so it was slow to act. At the same time, the market expects that the Federal Reserve will continue to significantly raise interest rates at the end of July, causing the U.S. dollar index to continue to strengthen. The result is 1 euro = 1 US dollar!
Recently, a boss doing business with Europe reported to the editor that because the money earned from transactions in U.S. dollars sometimes fluctuates greatly, he plans to directly use euros for settlement. Now this situation can only be said that the plan cannot keep up with the changes. As we all know, a country’s currency Depreciation is more conducive to imports, so this will definitely have a big impact on bosses trading with Europe.
RMB strong
Not only the euro, but also the currencies of many countries around the world have experienced depreciation. For example, the Japanese yen has plummeted, while the RMB has remained strong and has been hovering around US$6.72. It is said that depreciation of the RMB is good for exports, while appreciation is not good for exports, but in fact, a stable exchange rate is the best news for foreign traders.
The profits that a low exchange rate can bring will not last long. Only with a stable exchange rate will my country’s competitive advantage be obvious, because foreign companies doing business with us always pay attention to the exchange rate. If the already sluggish foreign trade market experiences exchange rate changes, The biggest pressure on foreign trade people is that customers wait and see and are reluctant to place orders.
Sea freight drops
At the same time, shipping rates have also been falling recently. Due to the slowdown in international economic growth, strikes have been reported in Europe and other places. Freight rates on the main routes from the Far East to Europe, the Mediterranean, the US West and the US East continued to decline collectively compared with the previous week, with the US East and US West seeing larger declines.
The pressure originally brought by high sea freight on foreign trade companies seems to have been reduced. Foreign buyers who originally had to bear the freight have slowed down their order placement and even reduced the order volume due to the expensive sea freight. However, with the decline in sea freight, the editor recently learned in the market that some foreign trade companies have continued to maintain orders. A foreign trade boss said: “It is common for me to be busy delivering goods until midnight.”
Financial pressure is great
Although the pressure on shipping and exchange rates is not great now, what worries foreign traders the most now is the financial pressure. In the past, the least worrying thing for foreign traders was the issue of payment, and they usually paid and delivered the goods in one hand. However, Times have changed now, and foreign trade companies have reported: “Nowadays, for overseas orders, we wait until the clothes are finished and then pay the final payment.”
Of course, another reason is that this year due to the high level of crude oil, which has led to higher costs, the prices of many fabrics have been difficult to rise. The profits made by the textile bosses are very small. The market was already not good, but now there are profits even if there are orders, which makes it worse. As can be seen from the picture below, since entering 2022, the profits of textile companies can be said to have plummeted.
Nowadays, as the United States is suffering from inflation, Sino-US trade relations seem to have eased, and the additional tariffs are expected to be cancelled. It is also a great benefit for textile exports. After all, China is the world’s largest producer and exporter of textiles and clothing. Although currently due to the impact of the epidemic, textile exports have not fully recovered, and although the news of tariff cancellation has not included any substantive measures. But it has to be said that this will send a positive signal to the market, thereby affecting the placement of subsequent orders.
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