EURUSD or EUR/USD is shorthand for the pair of currencies made up of the Euro and the United States Dollar. Trading this pair, in particular, is often known as trading the “euro” (even though there are other currencies the Euro trades with). The value indicates how many dollars (the quote currency) are needed to buy a Euro (the base currency).
Characteristics of the pair
The EURUSD is the most traded and the most liquid of all the forex pairs, which is to be expected since it represents the two largest economies in the world. Of the 28 member countries of the European Union, 19 have adopted the common currency, and the combined economies of those countries are called the “Eurozone.” In 2016, the Eurozone represented $19.7 trillion in GDP, making it the largest economy in the world. Combined with the U.S.’ $18.6 trillion of GDP, the economies represent over 43 percent of the entire world’s economy.
Germany represents just over one-fifth of the total GDP of the Eurozone, followed by France with 16 percent.
The Euro itself is one of the newest currencies, having only started circulation in 2002. While it was initially intended to be used by all countries in the EU, some members have chosen to keep their currencies, such as Denmark and Sweden, while others have been unable to meet the requirements to join, such as Bulgaria, Croatia and Romania.
What influences the pair
The monetary policy of the Eurozone is determined by the European Central Bank (ECB), which has the job of maintaining the stability of the currency and keeping the inflation rate between 0 and 2 percent annually. Variations from that target can lead to intervention by the bank, which strengthens or weakens the currency.
The monetary policy of the U.S. is set by the Federal Reserve (Fed), which has what is referred to as a “dual mandate” to keep inflation low and unemployment at a structural level.
The differences in outlook and therefore the policy of the two regulating agencies is one of the main factors that drive the value of the currencies when paired with each other. The second factor traders look at when evaluating the pair is the relative economic performance of the underlying countries; better financial performance typically means the currency gets stronger.
Safe haven flows also influence the pair. In periods of economic risk, investors often retreated to the relative safety of the dollar, strengthening the currency. Despite being a large, developed economy, the Eurozone is not seen typically as a safe haven. Within the Eurozone itself, though, there are two areas: the “core” consisting of countries like Austria, Germany and France, which are seen as stable; and the periphery, comprising of countries like Italy, Portugal, Spain and Greece, which are perceived to have more economic difficulties.
(Featured image by DepositPhotos)
DISCLAIMER: This article expresses my own ideas and opinions. Any information I have shared are from sources that I believe to be reliable and accurate. I did not receive any financial compensation for writing this post, nor do I own any shares in any company I’ve mentioned. I encourage any reader to do their own diligent research first before making any investment decisions.
Is it profitable to invest in Bitcoin?
Despite turbulence Bitcoin’s value is growing. In 2009, you could buy from 700 to 1600 coins for just 1$. Bitcoin...
Investors are increasingly focusing on Chinese opportunities
A recent study by the Economist Intelligence Unit has looked into China’s exposure to global investors and found that it...
How technology is changing the way governments operate
Visionary city officials know that industry is attracted to tech-savvy regions, so they are opening technology incubators, supporting emerging technology...
Women are the key to unlocking Africa’s scientific potential
Female students are still in a minority in universities across the continent. Approximately 200,000 African students are currently preparing a...
Last week in agriculture: what happened with wheat, corn, oats and soybeans
Corn was lower and Oats closed a little higher last week. Soybeans and soybean oil were lower too. The market...
- Featured7 days ago
Why millennials are embracing impact investment
- Cannabis5 days ago
Israel bets on the medical cannabis sector
- Featured7 days ago
How fintech is revolutionizing the brazillian agricultural sector
- Cannabis6 days ago
Veritas Farms and FounderMade showcase the potential of the U.S. CBD beauty industry