The steady and orderly decline of the dollar from early 2002 to early 2007 against the euro, Australian dollar, Sterling Pound, Canadian dollar and a few other currencies (ie, its trade-weighted average, which is what counts for purposes of trade adjustment) , remains significant.
In the wake of the sub-prime mortgage crises in the US, dollar losses escalated and continued to feel the backlash. The Fed responded with several rounds of rate hikes while weighing the balance of domestic growth and inflation fears.
Basic theories underlying the dollar to euro exchange rate:
Law of One Price: In competitive markets free of transportation cost barriers to trade, identical products sold in different countries must sell at the same price when the prices are stated in terms of the same currency.
Interest rate effects: If capital is allowed to flow freely, exchange rates become stable at a point where equality of interest is established.
The dual forces of supply and demand determine euro vs. dollar exchange rates. Various factors affect these two forces, which in turn affect the exchange rates:
The business environment: Positive indications (in terms of government policy, competitive advantages, market size, etc.) Increase the demand for the currency, as more and more enterprises want to invest there.
In the wake of the sub-prime mortgage crises in the US, dollar losses escalated and continued to feel the backlash. The Fed responded with several rounds of rate hikes while weighing the balance of domestic growth and inflation fears.
Basic theories underlying the dollar to euro exchange rate:
Law of One Price: In competitive markets free of transportation cost barriers to trade, identical products sold in different countries must sell at the same price when the prices are stated in terms of the same currency.
Interest rate effects: If capital is allowed to flow freely, exchange rates become stable at a point where equality of interest is established.
The dual forces of supply and demand determine euro vs. dollar exchange rates. Various factors affect these two forces, which in turn affect the exchange rates:
The business environment: Positive indications (in terms of government policy, competitive advantages, market size, etc.) Increase the demand for the currency, as more and more enterprises want to invest there.
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