(MENAFN- Kashmir Observer)
Representational Photo

Everyday exporters in South Asian countries feel the tremors when foreign exchange rates change fast. A small swing in currency somewhere else can cascade through supply chains and ultimately profit margins. Among currency pairs, the major EUR/USD is the most influential; it is often at the epicenter of global trade, and as a result, many contracts and commodities are priced in these currencies. The EUR/USD rate directly affects how South African nations like India, Bangladesh, Sri Lanka, Pakistan, and others price their exports and imports.

Below, we will offer research-based insights into how EUR to USD swings play out in South Asia's trade and how major players get affected directly.

Global role of EUR-USD in trade

The exchange rate of eur to us dollars has much more significant importance than just numbers on the screen. They can affect companies in a profound way, and knowing what to do to counter these issues is critical. The EUR/USD pair is among the most traded currency pairs in the world, and it has a direct impact not only on international finance but businesses that operate in exports and imports. In trade invoicing, the dollar remains dominant, and it is here to stay in the future, so exporters in South Asia need to have a strategy to ensure their profits remain stable even in global financial turmoil. Many third-party trades are affected via dollars, and a shift in EUR/USD can influence commodity prices like oil and metals, which are usually priced in dollars. Shipping costs and financial costs are also affected. For example, if the euro weakens against the dollar, European exporters might push prices higher to maintain their margins, which can potentially lower the prices of European machinery in South Asia. On the other hand, if the euro strengthens, those same machines can become more expensive in dollar terms, which can quickly shift the cost burden onto imports in South Asia.

ADVERTISEMENTImpact on South Asian imports

When the euro strengthens vs the dollar, like lately, goods priced in euros or whose cost base is European become more expensive in dollar terms. Many South Asian importers purchase industrial machinery, chemicals, electronics, and medical equipment from Europe. As a result, the cost of imported goods in local currency can change dramatically in a short period of time. Since South Asian countries are quite import-dependent, and when the euro appreciates, the added costs usually get passed forward to local firms, reducing their profit margins or inflating retail prices.

For example, Bangladeshi textile firms import specialized dyeing machinery from Germany or Italy. If the euro strengthens 5% relative to the dollar, those machines can become 5% more expensive. This cost usually passes on to buyers of garments, increasing export costs.

Impact on South Asian exports

South Asia's export sectors like textiles, garments, leather, IT services, and agricultural goods are often priced in dollars or local currency, but their competitiveness is heavily influenced by cost structure and buyers' willingness to buy their products at competitive prices. If the EUR weakens, EU buyers find imports from South Asia relatively more expensive. The relative cost of buying from Asia vs Europe changes. Exports often need to discount or offer incentives to maintain market share, which damages their profit margins. Let's take an example from Bangladesh one more time as the country is a major garments exporter. Its RMG exports to the EU are critical as it accounts for over 20 billion dollars annually. Because tariffs give advantages, changes in euro rates affect its overall profitability a lot. If the euro strengthens, exports can capture a slightly higher margin and the opposite is true when it weakens against the dollar.

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