Today I want to delve on the history of euro dollar. EURUSD historical assessment provides some good insights to traders that enjoy trading this currency pair.
The euro dollar (EURUSD) is the most popular currency pair in terms of the volume trade around the world.
The rate at which the EURUSD has gained popularity might lead many traders to think that it has been in existence for a long time.
This is not true. The euro dollar has only been in existence for like 20 years now.
This means that it is not a currency pair that forex traders were involved with initially. Yet, it is the most traded pair in recent times.
The history of euro dollar commenced shortly after the formation of the European Union.
EU is a political union consisting of 27 countries based in Europe. The countries came together and agreed to be bound by prescribed rules and use a common currency known as the Euro.
By considering the value of each currency, the euro can be converted to other currencies and vice versa.
The Euro currency is not pegged to the U.S dollar since it is a major reserve currency being traded on the forex market.
As a result, there are inherent value fluctuations that are relative to the economic circumstances being experienced in the EU and the U.S.
Evolution of the Euro Dollar Pair
The history of euro to dollar is one that has been evolving over time.
In the late 90s, the forex market was quite different from the way it is right now.
The biggest pairs included the French Franc and German Deutschmark paired against the US Dollar.
The history of currency conversion took a different direction in 1999 when the Euro currency came into existence. This was a journey that had commenced some years ago.
Before the emergence of the Euro, there were earlier versions of a common currency for European community members that came in the form of internal accounting units.
Since the inception of the Euro on 1st January 1999, the currency has only spent less than two years below the USD in terms of value.
The peak of the euro currency came in April of 2008 where it actualized an exchange rate(EURUSD exchange rate) of $1.60 i.e. €1=$1.60
A low Euro to USD exchange rate means that your dollar would purchase less in the EU while a high rate means it would purchase more.
The euro dollar exchange rate keeps changing from time to time.
History of Euro Dollar Annual Average Exchange Rate Between 1999-2019
Below is a graph showing the history of euro dollar valuation. It is a graph showing a rundown of the EURUSD historical conversation rates.
This will help you to understand the relationship between the two currencies for the last 20 years.
The statistics above showcase the annual exchange rate of the EURUSD by using an average of standardized measure.
The data is derived from the European Central Bank and covers the period when the euro was introduced (1999) up to 2019.
The standardized measure comes about as a result of the calculations of numerous observations that are made throughout the period in question.
As a result, it is different compared to the annual measure at a given point in time that tends to reflect concrete values as of the end of a given year.
The average annual exchange rate of EUR to USD experienced a steep increase between 2001 and 2008. The highest point was in 2008.
However, it has been in decline since then. By 2019 the value had decreased overall to a value around 1.12; ie, €1=$1.12
How the Exchange Rate Converts Euros to Dollars
The euro usually has a flexible exchange rate that is dependent on three factors.
1. Debt levels being actualized by the individual countries within the European Union.
2.The European economy’s strength.
3.The benchmark interest rate of the European Central Bank
Going with this, forex traders usually have the ability to influence whether the relevant currency is going to increase or decrease in value.
In times when the interest rates are rising, and there is strong growth in the European economy, the chances are that traders will be predicting an increase in value.
This is when they start to bid the price with an anticipation that the value continues to increase.
However, there are other forex traders that might be reading the same data, but decide that the value of the currency will decline. They do the opposite of what the other traders are doing.
This is an aspect that creates the complex interactions and fluctuations of selling and buying forex pairs like EURUSD that tend to determine currency prices at any given time.
What Has Affected the History of EURUSD
There are several factors that tend to affect the flow and short-term ebb of the Euro Dollar exchange rate.
However, the long-term performance of the EURUSD is driven by varied fundamentals.
As a general rule, these are the same factors affecting the currency exchange rate of other forex pairs.
The monetary policy implemented by the relevant central bank and the underlying economy are the two important factors that affect the general exchange rate.
The speculation comes more into focus as the timeframes involved shorten. As a result, the expectations over central bank policies bear a major impact. Looking at the history of euro dollar exchange rate gives us some clear examples.
Many of these were experienced after the biggest reductions in EURUSD history: which was the global financial crisis that commenced in 2007.
Central banks all over the world had to come up with a sequence of extraordinary responses to help ease the stress placed on the economies due to this event.
However, these responses were not uniform.
In particular, there was a pronounced divergence between the policies enacted by the European Central Bank and the US Federal Reserve.
The US Federal reserve was aggressive and moved early to try and stimulate the economy using three different tranches of quantitative easing.
On the other hand, there was a resistance of the quantitative easing by the European Central bank for an extended period.
ECB was several years behind the FED the moment they commenced to purchase sovereign bonds as a stimulus measure.
The two central banks differed for some reasons.
To begin with, the FED is mandated to both stabilizing prices and fostering maximum employment.
On the other hand, the primary objective of ECB is only price stability.
The disparity in policy resulted in effects on the euro dollar exchange rate. There is a point where even most of the forex news concerning EURUSD was about the FED stimulus.
In this history of euro dollar, it is good to mention that during this period too, the Eurozone sovereign debt crisis was another key issue facing the Euro.
There were member states that were experiencing a crippling amount of national debt.
There was a thorny problem associated with a uniform monetary policy for a currency that was being shared.
A one size fits all monetary policy can be quite problematic when trying to meet the specific needs of the countries involved.
This is something that even led to the question of whether the Euro currency would survive in the long run.
Despite this doubt, the Euro currency is still in existence, and it is doing good in the market.
Though it is good to note that its value is declining, going with the history of euro dollar exchange rate data.