Forex Trading

What is the Euro? What influences the Euro?

Find out more about the Euro and what influences the European dollar

Euro dollar coin

As the name depicts, Euro is the official currency of the European Union. 15 member states of the organization are currently using Euro for trade. These states include France, Germany, Italy, Greece, Austria, Finland, Cyprus, Belgium, Ireland, Portugal, the Netherlands, Spain and Slovenia. Euro is also used in five other countries with formal agreements which are Monaco, San Marino, Vatican City, Mayotte and Saint Pierre and Miquelon. Without any type of agreements, Euro is also under circulation in six other countries including Andorra, Kosovo, Montenegro, Akrotiri and Dhekelia.

European Union introduced Euro in 2002. At present, Euro is one of the strongest contenders against the US Dollar. The European Standard Bank is the principal bank that makes a decision on the monetary policies like rise in interest rates, keeping inflation checked, etc. Keeping in view its past record (when despite the slow economic growth it kept the interest rates steady) we can say that Euro is less likely to face adjustments in exchange rate.

The influences of Euro are many. It has made many lives simpler by eliminating the currency exchange phenomenon from their daily lives, thus enabling easy payments and allowing to compare prices in a convenient way. At the same time, the negative aspects of the single currency include higher prices and more importantly, the lack of an autonomous economic policy.

Euro is mostly traded in pair with US Dollar. It means that when the US Dollar rises against the Euro, the Euro will fall. For example, if inflation is high and the Federal Reserve lifts the interest rates, this will result in upward trend of the US Dollar and thus Euro will slightly fall. Similarly, as the majority of world oil trade is done in US Dollars, so when the oil prices move higher, the Dollar also strengthens, thus affecting the Euro to decline. Euro is largely dependent on the manufacturing industry of the countries included in Euro Zone. Better production in these countries would increase the strength of Euro.

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