Comparative Study of US Dollar and Euro Essay Example | Topics and Well Written Essays - 2000 words

Comparative Study of US Dollar and Euro - Essay Example Apart from its superior position in markets around the world US Dollar seems as more prepared, compared to other currencies, to face long term economic pressures. Reference is made in particular to Euro, a currency that has challenged the hegemony of US Dollar in global market. Current paper provides a comparative analysis of the two currencies. Emphasis is also given on the factors which have mostly affected the performance of these currencies, especially in regard to 2009 onwards. The financial recession of 2008 and the Euro zone debt crisis, that followed, are used as key events for the evaluation of the potentials of the two currencies in the future. In general, the US Dollar is proved to be stronger both in case of unexpected turbulences and in case of long term economic downturns. 2. US Dollar v Euro – Comparative analysis 2.1 Value of US Dollar compared to Euro The value of US Dollar towards Euro has faced important fluctuations. The turbulences in the global financial market, as related to the Euro Debt Crisis, have led to the decrease of the value of Euro, compared to US Dollar. Indeed, In January 2012 the value of Euro reached the $1.274 (Index Mundi 2012), which is rather low compared to the currency’s value in the past. For example, in January of 2011 the value of Euro was estimated at $1.3371 (Index Mundi 2012). Up to July 2012, the value of Euro towards that of US Dollar was significantly decreased a fact that was related to the continuous deterioration of the Euro Debt Crisis. In July 20 of 2012 the value of Euro reached the $1.2176 (Index Mundi 2012), a quite low level. This fact has caused severe concerns to the leaders of EU. The threat of a potential collapse of the Euro zone had appeared. In order to understand the position of Euro towards the US Dollar it would be necessary to refer to the fluctuations in the value of these currencies for the last four years, i.e. from 2009 up to 2012. In this way, it would be made clear wheth er the power of the two currencies in the global market is equal or whether one of them is at an advantageous position. During 2009 the value of Euro was decreased at a level of 20%, compared to 2008. The global financial crisis of that period has been probably the key reason for the above phenomenon. At the end of the above year the value of Euro was estimated to $1.43 (Index Mundi 2012). The year that followed, 2010, the value of Euro was further decreased; by the end of 2010 the value of Euro was fell to $1.32 (Index Mundi 2012). Again, the Euro Debt crisis, which has appeared to be more intensive in Greece, has been related to the further limitation of the value of Euro towards that of US Dollar (Index Mundi 2012). During 2011 the distance between the two currencies was further decreased. In the beginning of 2011 the Euro seemed as able to increase its power as a global currency. Indeed, the introduction of effective measures in regard to the Greece debt crisis has caused pressu res on US dollar; during the first months of 2011 the US dollar lost a 10% of its value (Index Mundi 2012). At the same time, Euro was strengthened reaching the $1.4675 by July 2011 (Index Mundi 2012). It seems that investors were, still, afraid of investing on US Dollar due to the US Debt crisis of 2008, especially since the above crisis resulted to a global recession. Moreover, it was in that period that the interest rate in the EU was increased to 1.5%, a fact that highly favored the Euro towards the