Changes in the European Euro - Essay Example

A. What has happened to the value of the U.S. dollar in relation to the euro over the past month? Over the past one month the value of US dollar hasseen a gradual weakening. Reference is for a period between 14th Jan 2011 to 14th Feb 2011. The dollar gradually weakened for a period of two weeks from rate of 1 USD = 0.7486 € down to 0.7234 €. For the more recent two weeks it has been volatile ranging between the lowest € 0.7234 to € 0.7387 per USD. The dollar strengthened 0.4 percent to $1.

3554 per euro at 5 p.m. in New York, from $1.3603 on 10th February 2011, when it rallied 1 percent. The greenback gained 0.2 percent that week against the common currency. The dollar advanced 0.2 percent on 11th February 2011 to 83.43 yen. The euro declined 0.1 percent to 113.06 yen. B. Identify two or more factors that might account for the changes in the value of the U.S. dollar with respect to the Euro. The US dollar rose as against most of the currencies as Hosni Mubarak, the president of Egypt stepped down and handed power to the military, stoking demand for the safety of U.S. assets.

US dollar gained third week in line against euro. Euro was weak also due to the news of President of Germany’s central bank resigned. The US jobs data are unlikely to encourage the Federal Reserve to change its loose monetary policy, which would help buttress the dollar. There was not sign of increase in interest rate of the euro-zone nations by the ECB hence that took away the support of euro as against US dollar. Referring to ‘the economics of Foreign Exchange and the Balance of International trade’ chapter, the supply of dollars offered in exchange for a foreign currency, such as the Euro, depends on the willingness of dollar holders to purchase Euro.

But the condition in the Euro zone in light of the current debt of many nations and weak economic data suggests that less people are is interested to buy or invest in Euro the supply of dollars for Euro depends on the desires of dollar holders to purchase euro goods and services and to invest in European assets. Other things being equal, an increase in the exchange rate of dollars in terms of euro is likely to increase the quantity of Dollars supplied in exchange for Swiss francs. Hence what effects the foreign exchange rates is a mix of political events in related countries (Egypt), interest rate scenario in related countries (Euro Zone), own internal happenings (jobs data of US) and anticipation of future events and how it will effect the country.

References 1 www.dailyfx.com/forex 2 Saraiva C and Benette A, Dollar Gains Versus Most Peers on Haven Demand as Mubarak Quits, Bloomberg Business week 11th February 2011. Web. 14th February 2011 3 Daivd J , WORLD FOREX: Dollar Jumps After Muddy US Jobs Data, Dow Jones Newswires, 4th February 2011. Web. 14th February 2011