What is the Euro Exchange Rate and What does it mean for Your Forex Portfolio?

Article Written By: Angelina Maples

Euro exchange rate can be defined as the price of one euro as a currency expressed in another country s currency. For example, as at the start of September 2010, the exchange rate of one euro against one U.S dollar currency was 1.28342. This means that one euro based on current exchanged rates can be purchased at 1.28342 U.S dollars.

U.S dollar is just a case in point; there are more than 29 world currencies which can be expressed in terms of euro. Such currencies includes: Australian Dollar (AUD), British pound (GBD), Canadian Dollar (CAD), Hong Kong Dollar (HKD), Japanese Yen (JPY) and Swiss Franc (CHF) among others.

However, as a prospective forex trader there is factual information you must have concerning the euro. For beginners, the euro (Sign: €; code: EUR) is the official currency of the Eurozone which consists of: Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia and Spain. Other users of the currency are five European countries, with and without formal agreements.

History and Current status of the Euro

Financial analysts rate euro to be the second most traded currency in the world after the U.S. dollar and the second largest reserve currency. Based on the latest IMF estimates of June 2010, the euro is the currency with the highest combined value of banknotes and coins in circulation in the world, having superseded the U.S. dollar with more than €800 billion in circulation.

What Does This Mean To Your Forex Portfolio

The null hypothesis from the recent meta-analysis studies suggests that the introduction of the euro has increased trade within the eurozone alone by 5% to 10%. Some other studies have in fact placed this effect to be between 9 and 14%.

Physical investment has also been reported to have increased by 5% within the 16 member states of European Union. In relation to the effect on corporate investment and foreign direct investment, a similar study found that the introduction of the euro has resulted in an increase in investment rates, making it easier for firms to access financing in Europe. On a global scale, there is evidence that the establishment of the euro has resulted in integration in terms of investment in bond and forex portfolios.

According to further study on this question, the overture of the euro has significantly led to a more liberal capital market in the EMC. The situation has been attributed to the European Central Bank (ECB) decision to have monetary autonomy and not to intervene in the foreign exchange rate market. Consequently, this has resulted into an exchange rate regime that is characterized by floating, reduction of the risk associated with changes in currency exchange rates, decreased interest rates of most member countries as well as a positive effect on tourism flows within the member states.

About the Author

Angelina Maples Euro Exchange rate and has been working in the Currency Trading industry for more than five years.

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