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Interested in comparing the Euro and the U.S. Dollar? Well, we're continuing with Part 2 of our discussion here.
Did you see Part 1 of Comparing The Euro And The U.S. Dollar? See Part 1 here.
Since its launch, Euro has spent a stint of only 2 years where it was undervalued than a dollar. It reached its peak value against the U.S. currency in the year 2008, where the exchange rate was $1.60 for a Euro. To simplify it, if the dollar amount is high against one Euro, then you'll have to spend more money to purchase in the countries that have Euro as their currency.
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Let's go down the timeline of the event to find the gradual changes and the subsequent reasons.
After being launched officially, the Euro fluctuated somewhere around $0.87 and $0.99. Most of the time, it remained undervalued by the U.S. Dollar.
In a short span of 6 years, the Euro rose to a whopping 63 percent, and on the contrary, the U.S. debt was somewhere around 60 percent. Late 2007 1 Euro stood tall at $1.46.
The after-effects of the mortgage crisis were neglected in the U.S., and later it went on becoming a worldwide affair, which led to the downfall of Euro, and, by the end of the year 2008, it stood at $1.39.
Starting from $1.34, the Euro rose $1.47 in mid of 2011. Credits to the U.S. debt default crisis, which led investors to lose interest in dollars, and then the ECB raised the interest rates, which meant that anyone depositing their capital in Euros is liable to get higher returns.
As a result of dual factors, which were; regulated purchase of Euro dominated bonds and a raise in the federal fund rate by the Federal Reserve of the U.S., the Euro fell to $1.07.
With 2016 being the year where the United Kingdom voted for the exit from the European Union, the markets suddenly crashed, which led to the downfall of Euro's value. However, the market later pacified, and transitions came to a standstill. The varying values were also a result of the investigation in the conspiracy matter of Trump's administration and the Russian Government.
Post the speculation of a trade war from Trump's side, the dollar was devalued by the end of the year; however, the impact of the statement was global, and it resulted in the decline of Euro's value too. By mid of Feb, it fell to $1.08, and due to the COVID impact, it stood low, lying at $0.89.
As of December 3, 2020, the Euro is worth $1.24, according to DailyFX.
As witnessed, not only the trade regulations have an impact on the conversion rates, but the political influence and unprecedented circumstances such as COVID-19 also affect the economy. However, there are still other factors on which the conversion rates are reliant.
These 3 factors influence the exchange rates and dictate the rise and fall of the Euro compared to other currencies. The trust in the economic performance of a nation leads to the rise in the bids made by the Forex investors. As the rate soars, it creates a value of trust and invites more investors on-board. This forms a cohesive chain and is only disrupted by any socio-political announcements or administrative changes. The circumstances have been in favor of Euro for a while, but the contemporary challenge of COVID-19 is subjected to bring a lot of hurdles along with it. It will be interesting to witness further fluctuation in the market rate.
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