The value of the Euro with the American dollar has remained markedly stable since the European currency's debut in 1999. There have been no sudden changes. This is even more remarkable as the United States has ran large trade deficits with the European Union (EU) since its inception, reaching a high of $124 billion dollars owed to Europeans in 2005, according to the Census Bureau.
While the Euro was introduced among banks in 1999, it was not available to the public until 2002. The introduction of the Euro saw an original exchange rate of roughly .86 Euros to the Dollar. The U.S. had run trade deficits with the EU prior to the introduction of the currency, and the European Central Bank (ECB) wanted to maintain a lower value to keep Europe's competitive edge. Since the EU is one of America's largest trade partners, the valuation of the Euro is of substantial macroeconomic importance.
The History of the Euro's Value
Given America's large trade imbalance with Europe, the value of the Euro shot up to a historic high in October of 2000, with the Euro exchanged as 1.19 American Dollars. In that year, the U.S. built a $58 billion trade deficit. The ECB suppressed the value of the Euro as the American trade deficit ballooned in 2001 to $64 billion, and then to $86 billion in 2002. By that time, the Euro stood at 1.03 dollars.
By 2003-2004, the Euro fell to .86 American Dollars as the American trade deficit shot up to $110 billion. The basic policy of the ECB was to maintain a competitive balance of trade with the U.S. The American trade deficit with Europe went up until 2005, while the value of the Euro went slowly down. Normally, a lower value currency is more competitive on international markets than a higher valued one—since the goods in the cheaper currency are cheaper abroad—and therefore, the low value of the Euro has at least a part to play in the American trade imbalance with Europe. This reflects the fact that European prosperity depends on access to the American market. Therefore, currency traders and bankers have a strong interest in keeping the Euro low, regardless of American economic problems.
The End of the Decade
The American financial crisis of 2007 hit the EU hard. It was then when states such as Greece, Iceland and Ireland began their slow meltdown over high debts. From its historic high in 2005, the American trade deficit with the EU went down to $100 billion in 2007, to $95 billion in 2008. As of the end of 2010, the American trade deficit with the EU was down to $10 billion. At the same time, the Euro remained stable. In 2007, the Euro traded at .6995 American Dollars, and, as of New Year's Day 2011, the Euro remained basically unchanged at .75.