Invesco CurrencyShares Euro Trust 10-K

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Introduction The following discussion and analysis was prepared to supplement information contained in the accompanying financial statements and is intended to explain certain items regarding the Trust's financial condition as of December 31, 2022, and its results of operations for the fiscal years ended December 31, 2022 and December 31, 2021. It should be read in conjunction with the audited financial statements and related notes thereto contained in this report. Cautionary Statement Regarding Forward-Looking Information This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as “anticipate,” “expect,” “intend,” “plan,” “believe,” “seek,” “outlook” and “estimate” and other similar words. Forward-looking statements are based upon our current expectations and beliefs concerning future developments and their potential effects on us. Such forward-looking statements are not guarantees of future performance. Various factors may cause our actual results to differ materially from those expressed in our forward-looking statements. These factors include fluctuations in the price of the euro, as the value of the Shares relates directly to the value of the euro held by the Trust and price fluctuations could materially adversely affect an investment in the Shares. Readers are urged to review the “Risk Factors” section in this report for a description of other risks and uncertainties that may affect an investment in the Shares. Neither the Sponsor nor any other person assumes responsibility for the accuracy or completeness of forward-looking statements contained in this report. The forward-looking statements are made as of the date of this report, and will not be revised or updated to reflect actual results or changes in the Sponsor’s expectations or predictions. Movements in the Price of the Euro The investment objective of the Trust is for the Shares to reflect the price in USD of the euro plus accrued interest, if any, less the expenses of the Trust’s operations. The Shares are intended to provide institutional and retail investors with a simple, cost-effective means of gaining investment benefits similar to those of holding euro. Each outstanding Share represents a proportional interest in the euro held by the Trust. The following chart provides recent trends on the price of euro. The chart illustrates movements in the price of euro in USD and is based on the Closing Spot Rate: 10 NAV per Share; Valuation of the Euro The following chart illustrates the movement in the price of the Shares based on (1) NAV per Share, (2) the “bid” and “ask” midpoint offered on NYSE Arca and (3) the Closing Spot Rate, expressed as a multiple of 100 euro: Liquidity and Capital Resources The Trust does not have any material cash requirements as of the end of the latest fiscal period. The Sponsor is not aware of any known trends, demands, commitments, events or uncertainties that will result in, or are reasonably likely to result in, material changes to the Trust’s liquidity and capital resources needs. The Trust’s Depository, JPMorgan Chase Bank, N.A., London Branch, maintains two deposit accounts for the Trust, a primary deposit account that may earn interest and a secondary deposit account that does not earn interest. Interest on the primary deposit account, if any, accrues daily and is paid monthly. The interest rate in effect as of December 31, 2022 was an annual nominal rate of 0.60%. The following chart provides the daily rate paid by the Depository since December 31, 2017: 11 In exchange for a fee, the Sponsor bears most of the expenses incurred by the Trust. As a result, the only ordinary expense of the Trust during the period covered by this report was the Sponsor’s fee. Each month the Depository deposits into the secondary deposit account accrued but unpaid interest, if any, and the Trustee withdraws euro from the secondary deposit account to pay the accrued Sponsor’s fee for the previous month plus other Trust expenses (including, without limitation, expenses resulting from negative interest rates), if any. When the interest deposited, if any, exceeds the sum of the Sponsor’s fee for the prior month plus other Trust expenses, if any, the Trustee converts the excess into USD at the prevailing market rate and distributes the USD as promptly as practicable to Shareholders on a pro-rata basis (in accordance with the number of Shares that they own). Distributions paid during the current reporting period follow (annualized yield reflects the estimated annual yield an investor would receive if a monthly distribution stayed the same for the entire year going forward, and is calculated by annualizing the monthly distribution and dividing by the Trust NAV for the dates listed below): FXE Distribution History Date Value NAV Yield Annualized Yield 12/1/2022 $ 0.01480 $ 95.01 0.02% 0.19% Results of Operations During the years ended December 31, 2022 and 2021, the Trust’s net comprehensive income (loss) was, in part, impacted by market volatility and uncertainty caused by the novel coronavirus known as COVID-19, which is considered to be an unusual or infrequent event. Although the full and direct impact of COVID-19 on the Trust’s net comprehensive income (loss) during the years ended December 31, 2022 and 2021 cannot be known, it is believed that COVID-19 has impacted the Closing Spot Rate, the interest rate paid by the Depository, and the global economy and markets generally, including the number of Shares created and redeemed by the Trust. While the Euro (EUR/USD) posted a negative annual performance in 2022, it did make a strong comeback to end the year. Heightened geopolitical tensions in Q1 and rising recession fears in Q2 and Q3 boosted investor demand for safe haven currencies like the US dollar, while simultaneously weighed on its European counterparts. Furthermore, higher interest rates boost demand for the country’s currency (in this case, boosting the USD). The deepening energy crisis in Europe, following the announcement of its upcoming ban of Russian oil and refined products in Q2, and then the indefinite halt of Russian gas pipeline flows in Q3, also raised probabilities for a regional recession. However, the EUR appreciated in Q4 as the dollar retreated on expectations for a dovish U.S. Federal Reserve System (the “Fed”) pivot. In 2021, the euro had its largest annual decline against the U.S. Dollar since 2015. Reimposed activity restrictions in several European Union member states to control the spread of the COVID-19 Omicron variant and a deteriorating Eurozone trade balance, coupled with the European Central Bank’s (ECB) policy divergence with other major central banks in terms of normalizing monetary policy, weighed on the currency. While the ECB has remained relatively dovish and is not expected to increase interest rates until early 2023, other central banks, such as the Fed and the Bank of England, have already raised rates or announced plans to raise rates by the end of 2022. Additionally, the interest rate paid by the Depository has generally trended downward over the past several years, slightly offset by improvements this quarter, to the current interest rate of 0.60%, as set forth in the FXE Rate Chart above. As long as the Sponsor’s fee and the interest expense on currency deposits, if any, exceed interest income, the Trust will incur a net comprehensive loss. Critical Accounting Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Sponsor’s management to make estimates and assumptions that affect the reported amounts of the assets and liabilities and disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period covered by this report. In addition to the description below, please refer to Note 3 to the financial statements for further discussion of our accounting policies. The functional currency of the Trust is the euro in accordance with ASC 830, Foreign Currency Translation.