Euro Vs. the U.S. Dollar
One of the key measures of foreign exchange, the euro versus the U.S. dollar reveals a history of price changes between the two currencies. Understanding how the euro and the dollar react to each other and to market fundamentals can help you to gauge money markets and better time your investments.
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History
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In foreign currency exchange (also known as 'forex'), the euro is considered one of the U.S. dollar's major trading partners. Depending upon public policies and business climates, the prices of the euro and the dollar may move in tandem (together) or in opposite directions.
Significance
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The euro, the common currency among 16 European Union (EU) trading partners, began being traded on foreign exchanges in January, 1999, shortly after it was adopted. The euro has a history of being generally strong against the dollar. This means that one euro has historically been worth more than one dollar on average, as of October of 2009.
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Features
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A relatively strong currency makes a country's (or in the case of the EU, a trading zone's) exports more expensive. So a strong euro relative to the dollar means that exporting companies in the euro zone pay relatively more to make goods in Europe, then have to sell goods in a U.S. market that pays them in weaker dollars.
Effects
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Traders use euro versus dollar movements to gauge small fluctuations in currency markets, as well as to attempt to predict correlating movement in commodities (physical goods such as gold, oil, and food products) markets.
Considerations
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Public policy makers in Europe and the U.S. measure the costs and benefits of a strong or weak currency policy against the effect on imports and exports, as well as effects on interest rates, potential inflation, and levels of national debt.
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