Euro Exchange Rate Trend Against The U.s. Dollar

One of the pillars of the status of the United States as a global super power is its currency, the U.S. dollar, which served as a major international reserve currency in the decades following the World War 2. Recently, the U.S. dollar faces increasing pressure from a newborn currency; namely, the common European currency, the euro, which is evolving into a new major reserve currency and this situation affects the euro currency rate against the dollar.

In the first couple of years, following its introduction, the euro remained weaker than the U.S. dollar but in the next few years the Forex traders witnessed a stable upward trend and the euro currency rate against the American currency gradually increased.
The euro and the U.S. dollar represent a major currency pair, which is among the most traded on the Forex markets and the euro exchange rate is crucial not only for currency trades but for all governments in the Eurozone and the countries whose national currencies are pegged to the euro. The euro exchange rate vs. the dollar also serves as a major indicator to compare the economic development of the European Union and the United States, respectively.

In general, the governments have one major tool to influence the exchange rate of the euro against the dollar; namely, the interest rates. It is a powerful weapon in the hands of the central banks although the Federal Reserve and the European Central Bank (ECB) use it with caution. The ECB prefers not to interfere directly in the Forex markets and tries to influence the euro exchange rate utilising different means the central bank governors possess.

The euro exchange rate is also very sensitive to data about the Eurozone and the economic development of the participating countries. In May 2010, the euro hit a 14-month low against the U.S. dollar on news that Greece experience serious financial troubles and rumours that the financial aid for the country can hamper the financial stability of the Eurozone.

Another property of the euro exchange rate against the dollar is its volatility, which could reach up to 4 per cent in a single trading day. The biggest daily gain of the euro vs. the dollar was on March 18, 2009 when the common European currency jumped by 3.9 per cent against the dollar, according to Reuters data.

Historically, there were many gains and slumps of the euro currency rate vs. the dollar but most analysts agree that the common European currency will continue to be relatively strong against the dollar in short- and mid-term. However, the Forex market is a sophisticated one, characterised by extreme volatility, so any forecasts can prove untrue in a few minutes. That is why all Forex experts and economists around the globe watch closely the exchange rate of this famous currency pair.