This article looks at the effects of certain factors on the foreign exchange rate between the US dollar and the Euro.
Trading opportunities for the EUR/USD currency pair are difficult to maintain due to the popularity of the pair. This has not stopped traders from trading this pair. This pair is the most liquid global currency pair and it offers traders extremely low spreads. The main attraction though is the liquidity of the pair. You will not experience any problems if you wish to buy or dispose of the currency pair.
This currency pair is particularly suited to newcomers to the forex market due to the volatility and liquidity linked to it.
The US Dollar
The global finance world maintains a special place in its centre for the US dollar. It is viewed as the global reserve currency and this is the reason why so many international transactions are concluded with the use of this currency. This makes the US dollar foreign exchange rate extremely important for big business corporations. Many countries hold huge amounts of this currency in reserve. Some of the smaller governments opt to fix their domestic currency to this currency. The dollar is used to determine the gold price, as well as the prices of other precious metals. This means that every time a country has the need to buy or sell a commodity, it has the need to buy or sell the US dollar.
The popularity of the US dollar has found its place in the foreign exchange trading market. If you are a beginner to this financial market, you should ensure that you learn as much as you can about this currency. You need to know what drives the US economy as this will enable you to predict the possible direction of the currency value.
The Euro is the domestic currency for the largest global economic region. This region has a gross domestic product in excess of $13 trillion.
The Euro is the domestic currency for 16 countries situated within the European Union. The Euro is often affected by disputes among the governments of the different countries regarding the future of the EU and its monetary policy. This could cause the currency to decline in value.
What Influences the EUR/USD Foreign Exchange Rate?
As far as this pair is concerned, the main determining factor is the strength of the economy of the two regions. In the event where the European Union’s economy exceeds that of the US, the euro will increase in value. If the roles were reversed and the US experienced a stronger economy, the dollar will increase in value.
The interest rates related to each country is a good measuring stick. If the US interest rates exceed those of the EU, the dollar value will increase. If the interest rates are higher in the EU, the euro will gain ground against the US dollar. This is not the only factor that affects the currency movements.
The Euro is affected by any political instability in any of the countries that form the EU. The world was introduced to the Euro during 1999, so it is still viewed as a fairly new global currency. Many investors and economists are still not sure of its place in the economic world. It is viewed by many as a test project for monetary and economic policy.