The Euro to Dollar Conversion and Its History
Time Is Running Out for a Low-Cost European Vacation
The euro was worth $1.20 on January 1, 2018. It meant that one euro could buy 20 cents more in goods and services than one dollar could. This is more than the $1.05 it could buy on January 6, 2017. But it's still low compared to 2010 when it could buy $1.44. It means that your dollar can go further in the European Union in 2017 than it could back in 2010. But time is running out to save money on a European vacation. That's because the euro's value continues to rise as the European economy improves.
How the Exchange Rate Converts Euros to Dollars
The euro's value depends on three factors. The most important is the European Central Bank's benchmark interest rate. Second, investors take into account the debt levels of individual countries, such as Greece. Third is the strength of the European economy.
Based on these factors, forex traders decide whether they think the currency will increase in value or not. When economic growth is strong or when interest rates are rising, odds are traders will predict an increase in value. They then bid the price up. Others may read the same data and decide that the value of the currencies will decline instead. These traders bid the price down. The complex interactions of these factors determine the currency's price at any given moment. Despite this volatility, the EU allows the euro's value to be decided by the forex market.
History of Euro to Dollar Conversion
2000 - 2002 - The euro traded within a narrow range in its first two years, between $0.87 and $0.99. It seldom broke above a dollar, until it was officially launched as a currency. Until 2002, it was used only for electronic transactions.
2002 - 2008 - The euro rose by 63 percent in just six years. During the same period, the U.S. debt grew by 60 percent. In January 2002, a euro was worth a little more than $0.90. By the end of 2007, though, its value had skyrocketed to $1.4718.
2008 - The euro started the year at $1.4738. Investors remained confident that the subprime mortgage crisis would be confined for the most part to the United States. This led to the euro’s strength. As soon as they realized that the recession was going global, the euro fell to $1.3919. Businesses then hoarded dollars during the 2008 financial crisis.
2009 - The euro started the year in a strong position, at $1.3946. It then fell to the year's low of $1.2545 as the ECB increased its benchmark interest rate to 1.5 percent. This time, investors were concerned that the ECB was hasty in raising rates, thwarting any chance of an economic recovery in Europe. The risk of renewing a recession offset the possibility of a higher return in holding euros, or euro-denominated bonds or investments.
The ECB realized that its strategy backfired and began lowering its prime rate. As a result, the euro’s value rose by 20 percent between March 3 and December 1. In addition, investors' fears about the $13 trillion U.S. debt (at that time) caused them to flee the dollar and dollar-denominated bonds. By the end of 2009, the euro was worth $1.4332.
2010 - The euro started the year at $1.4419. It dropped by 17 percent against the dollar, hitting a low of $1.20 June 10. Investors were worried about the weakness of the EU's economy. It then rose to $1.42 by November, when the EU economy showed renewed signs of strength. This confidence didn't last long though. The euro ended 2010 at $1.3269.
2011 - The euro started the year at $1.3371. It rose to a high of $1.4675 in July. This happened for two reasons. Investors abandoned the dollar thanks to the U.S. debt default crisis. At the same time, the ECB raised its key interest rate to 1.5 percent. It increased bank rates for anyone lending or saving in euros, thus raising the value of the currency itself.
As soon as the U.S. debt crisis was somewhat resolved, investors then fled the euro in response to a flare-up of the Greece debt crisis. It created doubts over the EU's financial strength and even the future viability of the euro itself. By October 2011, the euro's value had dropped to $1.3294. It rose for a brief while as EU leaders met to resolve what had then become the eurozone crisis. By December, it was back to $1.33.
2012 - The worsening eurozone crisis pummeled the euro. Many wondered whether the eurozone itself would survive. The euro started the year at $1.274. It rose for a brief while to a high of $1.3452 in February, as investors were calmed by an intergovernmental treaty agreed to in December 2011.
In May, the euro plummeted to $1.2405 as the Greece debt crisis worsened. The government was put on hold when neither party won enough votes to elect a President. The future of Greece's membership in the eurozone was uncertain until a pro-bailout President was elected June 17. The euro rose for a brief while to $1.27 June 20. It fell back just as fast as the interest rates on Spanish and Italian bonds rose to the unsustainable 7 percent level. By August 2, the euro was only worth $1.2149. The crisis was soon averted and by December 31, it had risen to $1.3186.
2013 - The euro started the year at $1.3195. It strengthened to $1.396 by February 1 in response to signs that the eurozone debt crisis was being addressed. Its strength could have hurt exports and the struggling EU economy. It fell a little in March, to $1.2990, though it recovered by November to $1.35. As the eurozone economy strengthened, so did the euro itself.
The ECB lowered its interest rate to 0.25 percent November 7, 2013, in response to fears of deflation. This drove the euro's value to $1.33. It ended the year up a bit at $1.3779.
2014 - The euro started the year at $1.3767. It rose to a high for the year of $1.3931 May 7, 2014. Though as the Ukraine crisis started to heat up, the euro began falling once again. It remained above $1.30 until September 4. When ECB Chair, Mario Draghi, announced that he would begin quantitative easing, the euro dropped by 1 percent right away, to $1.2954. It fell to a two-year low of $1.25 in November, when the ECB announced that it would keep interest rates low. It then fell to $1.21 by the year's end on fears that Greece would drop out of the eurozone after its January 28 presidential election.
2015 - On January 22, 2015, the euro fell to $1.12. This was because the ECB announced that it would purchase 60 billion euros in euro-denominated bonds each month starting in March. Quantitative easing boosted the EU's economy, which was struggling with recession. On March 12, 2015, the ECB started buying the bonds. The euro fell to $1.0524 (a 12-year low) March 13. Throughout the summer of 2015, the euro rose to $1.10 as it appeared the economy was strengthening.
On November 10, the ECB announced that it would lower interest rates. It also said that Greek banks must raise $16 billion to cover bad debt. This put downward pressure on the euro as investors feared a revival of the Greek debt crisis. At the same time the U.S. central bank, the Federal Reserve, raised the fed funds rate in December 2015. It drove the euro down to $1.07. For more on how this works, see Why Is the Dollar So Strong Right Now?
On November 13, 2015, terrorists attacked Paris. The euro fell further to $1.056 by November 30. The attacks prompted a flight to safety toward the dollar, thereby weakening the euro. It strengthened to $1.0986 after the E C B announced that it would continue its quantitative easing program through to March 2016. The euro ended the year a little lower, at $1.0903. (Source: "ECB Announces Further Stimulus Measures," New York Times, December 4, 2015)
Some analysts predicted the euro would fall to parity, which means it will equal one dollar. That's because traders used it as part of a profitable carry trade. They shorted the euro, which had a low interest rate. They use the funds to invest in British pounds, which paid a higher interest rate. (Source: The Daily Shot)
2016 - On January 1, 2016, the euro was worth $1.08. It rose to $1.13 February 11 as the Dow fell into a stock market correction. It remained within that range until the United Kingdom voted to leave the European Union June 24. The euro then fell to $1.11 the next day as traders predicted that the uncertainty surrounding the vote would weaken the European economy. On Monday, it fell to $1.10. Here are more Brexit Consequences.
The markets calmed down after realizing that Brexit would take years. The euro rose to $1.1326 August 23. It then fell to its 2016 low of $1.039 December 20, 2016. Italy's presidential election increased the risk that its banks would not regain its health.
2017 - The euro rallied 14 percent against the dollar. It was worth $1.05 January 1, 2017. It remained between that and $1.09 until May. By September 8, 2017, it strengthened to $1.20. Europe began looking like a stronger economic bet after investigations into the connections between President Trump's administration and Russia worried investors. The euro fell to $1.16 after Germany's close election, but regained its strength, ending the year at $1.1979.