Euro-Dollar currency exchange

Euro-Dollar currency exchange

The euro to US dollar exchange rate is the price at which the world demand for US dollars equals the world supply of euros. Regardless of geographical origin, a rise in the world demand for euros leads to an appreciation of the euro.

Factors affecting the Euro to US dollar exchange rate Four factors are identified as fundamental determinants of the real euro to US dollar exchange rate: The international real interest rate differential between the Federal

•Reserve and European Central Bank Relative prices in the traded and non-traded goods sectors

•The real oil price

•The relative fiscal position of the US and Euro zone

•The nominal bilateral US dollar to euro exchange is the exchange rate that attracts the most attention. Notwithstanding the comparative importance of

bilateral trade links with the US, trade with the UK is, to some extent, more important for the euro. The following chart illustrates the EUR/USD exchange rate over time, from the inauguration of the euro, until mid 2006. Note that each line (the EUR/USD, USD/EUR) is a "mirror" image of the other, since both are reciprocal to one another. This chart is illustrates the steady (general) decline of the USD (in terms of euro) from the beginning of 2002 until the end of 2004.