EUR/USD (or euro-dollar) does not have a very long history, as the euro only came into existence as a digital currency in January 1999 and a physical currency in 2002. However, this young forex pair quickly became the most popular by trading volume.
When the euro was introduced in its physical form, 11 European currencies were combined, abolishing the Franc, Deutschmark, Peseta and Lir a, among others. At this time, the euro’s exchange rate against the dollar was 1.1686 and many believed that EUR could overtake USD as the world’s official reserve currency.
Countries started to do more business with each other after the euro’s introduction due to the lack of currency risk, with the resultant rise in gross domestic product (GDP) growth across the eurozone causing EUR/USD’s price to surge. The years 2008 to 2014 were marked by economic crises – first in the US and then in the eurozone – which played havoc with EUR/USD’s price. While the Fed looked to increase interest rates in response to a strengthening economy after 2008, the ECB had to keep interest rates low and introduce a quantitative easing programme to boost spending in Europe.
In 2016, when Britain voted to leave the EU, EUR/USD tumbled. The same happened when Trump won the US elections later that year. The uncertainty surrounding the final Brexit deal continues to affect euro pricing, with Britain expected to leave the EU in October 2019. A ‘hard Brexit’ (no deal) is likely to have a negative impact on the euro, whereas a ‘soft Brexit’ (in which the UK and EU maintain close ties) could limit the impact or even strengthen the euro.
As of 2019, USD is the primary reserve currency. The euro – now used by 19 EU countries – is the second largest, with the Japanese yen (JPY) in third place and the pound (GBP) in fourth.
