Compared to the other major currency pairs traded in the forex market, EUR/USD history is relatively brief, spanning little more than ten years since trading began in the Euro at the end of the 20th century.
Nevertheless, the common currency for the European Union came about as the result of a long and drawn out process, which led to the increasing monetary unification of Europe and the adoption of the Euro by many of the nations participating in the Union. The countries where the Euro is used as currency collectively make up the Eurozone.
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Early History of the Euro
The idea of the a single consolidated currency came about in 1995 to help solve the problems of the previous currency regime of the European Monetary System known as the Exchange Rate Mechanism or ERM.
The ERM allowed currencies to fluctuate within a narrow 2.25% range up or down. If the currency exceeded the range, its issuing nation’s central bank was obliged to intervene in the currency market or adjust its benchmark interest rates in order to help bring the currency back in line with the other participating European currencies.
Eventually, stresses accumulated within the ERM that led to the UK Pound Sterling and the Italian Lira being forced out of the ERM fluctuation bands in September of 1992. Mass speculation by hedge funds and other large investors led both currencies to devalue sharply against the German Deutschemark, which had been strengthened by the unification of East and West Germany after the fall of the Berlin Wall.
Emboldened by that success, other European currencies, including the French Franc, were also hit by waves of speculation during 1993. This upheaval subsequently caused the ERM to widen its fluctuation range to 15%.
The Euro is Born
By 1995, the abject failure of the ERM to stabilize national currency exchange rates within Europe led to the proposal of the adoption of a single European currency. The actual currency did not appear until January 1st, 1999, when it was adopted as an accounting currency for transactions made electronically. It was assigned the official three letter ISO 4217 currency code of EUR.
The initial valuation of the Euro versus the U.S. Dollar, basically the EUR/USD exchange rate, was based on that for the European Currency Unit or ECU, a currency based on a basket of currencies of the European Community member states. The Euro did not begin to circulate formally until 2002, when twelve nations adopted the consolidated currency and began using the new paper and coin currency.
Since its introduction, the Euro has become the second largest reserve currency after the U.S. Dollar. Also, when it is quoted against the U.S. Dollar as the EURUSD pair, it forms part of the most heavily traded currency pair that accounts for roughly 30% of forex market turnover.
EUR vs. USD Rate History
EUR/USD exchange rate history starts when the Euro was first issued in January 1999. It opened at 1.1795, although the rate then fell considerably in value. By the time the new currency began circulating within much of Europe in 2002, the pair was only 0.8907, after having fallen as low as 0.8225 in October of 2000.
Nevertheless, the increasing popularity of the consolidated Euro currency led EURUSD to gradually increase, crossing back above the psychological 1.0000 parity level in November, 2002. The currency pair continued to trend higher, eventually attaining its all time high level of 1.6037 in July, 2008 in the wake of the U.S. sub-prime mortgage crisis that led to the collapse of Lehman Brothers in September of that year.
Since reaching its peak, EURUSD has traded in a wide range bounded on the downside by a low of 1.1876 seen in June of 2010 as the Greek sovereign debt crisis increased worries about a possible Eurozone breakup. Although the pair has since recovered considerable territory, concerns about the debt burden of less affluent European nations continue to weigh on the rate.