Since its introduction into world financial markets in 1999, the Euro has far exceeded the U.S. Dollar in world circulation. Today, more than €800 billion Euro notes are in circulation, largely aided by its adoption as the formal currency in the vast majority of European countries (e.g. Spain, France, Germany, Italy, etc.). However, the Euro has not escaped controversy, most notably with the UK’s refusal to convert currencies. This is due in a large part to the speculation that the Euro may eventually be dropped.
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Euro FX Facts
Euro FX futures allow traders to assess value against the U.S. dollar, as well as the opportunity to address risk from currency fluctuations in other foreign trade markets.
Since the Euro is used in 17 of the 27 European Union countries, many times a Euro note is purchased in one country but spent or used in another country. This can create a cash flow issues in some areas and the European Central Bank is responsible for redistribution in order to prevent shortages.
Currency rates are determined by a one base currency quoted in relation to a different currency. Major currencies that are traded are floating. Central bank monetary policies can affect the value of currency. The European Central Bank regulates monetary policy for the Euro. For instance, low interest rates dictated as policy can be bearish for currency value because new money is being pumped into the market. This is unappealing to foreign investors because returns yield those low interest rates. In contrast, high interest rates set as policy are bullish and appealing to foreign investors because of high interest yields from the returns. Currency values can be also be affected by the nation’s current account balance. An excess or influx in the balance is considered to be bullish, while a deficit or drainage is considered to be bearish. Economic stability and investment in the country also help strengthen currency values because international investors are likely to buy into that country’s favorable markets.
Source: Barchart, European Central Bank
Last updated September 2015.
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