EUR/USD Futures & CFD

The Euro is the official currency of 17 member states of the 27 European Union members. It is the most traded currency after the US dollar and is considered as the second largest reserve currency in the world. During the 1950’s, exchange rates were fixed but adjustable and remained stable under the well functioning international monetary system (the Bretton Woods system). Hence, Europe’s ‘founding fathers’, who negotiated the Treaties of Rome in the 1950’s did not think of a common currency, and thus the European Economic Community (EEC) never felt the need to pursue monetary integration.

But, by the end of the 1960’s, the global economic scenario had changed drastically and the Bretton Woods system was showing signs of disequilibrium due to US balance of payments policy. Rising uncertainties led to several exchange rate and balance of payment crises among the EEC member states. The idea of common currency evolved in 1962; under the ‘Marjolin Memorandum’, European Union made its first proposal for an economic and monetary union. However, the road to euro took almost four decades. It is only by the end of February 2002 that Euro banknotes and coins were introduced and thus became the sole legal tender in the Euro area.

The EUR/USD exchange rate is one of the most important benchmarks in the global economy and the global monetary system. Day-to-day fluctuations of the EUR/USD rate have an immediate impact on the competitiveness and purchasing power as well as on the value of accumulated assets of internationally diversified investors. The pair fluctuates freely and is therefore determined by demand and supply in the foreign exchange market.

According to the latest report from Bank for International Settlements (BIS), the US dollar remains globally the most traded currency, represented in 87% of all foreign exchange trades in April 2013, up by a substantial 2.1 percentage points compared to 2010. The Euro is the second most traded currency, but its share fell sharply to 33% in April 2013 from 39% in April 2010.