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Is the Euro stronger than the US dollar?
The tussle between currencies is a well-known affair. Due to varying reasons, say economic boost, political shift, or any unforeseen circumstances, the currency of the nation witnesses a dip or arise. Investing capital in the Forex has always been in trend. With the accompanying risk, there's an enormous opportunity for growth and profit.
Amidst all the discussions and speculation, there has been a constant query or a point of curiosity that, despite the U.S. being a superpower has its currency undervalued than that of the European Union, though both are few of the strongest currencies across the globe. We are here to find the origin, journey, and the mystery behind this fact. So let's get down to the basics.
An individual can trade or invest in any currency via the avenue of foreign exchange. The process involves a lot of risks as the market has ephemeral stability. Any slight turmoil can change the flow of capital and add chaos to the Forex domain. However, the other way to see this can be tides can turn into the investor's favor, too, as the depreciating value of a currency can profit someone who had bid against it. The bid for the currencies is relative i.e., you always bet for a currency's value (say X) with respect to the value of other currency's value (say Y). To yield a high return, one must be active and an ardent investor with hawk's eye vision.
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Used by 27 nations Euro is one of the strongest currency in the world that come under the canopy of the European Union (E.U.), these countries follow a pre-defined set of rules and regulations. They have unanimously agreed to have Euro as their national currency. Being a major reserve currency, the Euro can singlehandedly control the tides of the market and is of prime significance. Moreover, it is not pegged to the U.S. Dollar, which is the main reason for market fluctuation in the varying economic circumstances.
Made up of 100 cents, the United States Dollar is the official monetary notation of the United States. Widely popular, the currency is the standard benchmark for almost all the market services and commodities. It is widely used for numerous transactions worldwide because of the American market's trade monopoly. One of the interesting facts associated with the currency is its usage by other countries' incoherence to their currency.
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 $1.60.3 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.
Let's go down the timeline of the event to find the gradual changes and the subsequent reasons.
2002: 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.
2007: 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.
2008: 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.
2011: 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.
2015: 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.
2017: 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.
2020: 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 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.
The exchange rate relies on 3 aspects:
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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