Flexible exchange rates
The ECB targets interest rates rather than exchange rates and in general does not intervene on the foreign exchange rate markets, because of the implications of the Mundell-Fleming Model which suggest that a central bank cannot maintain interest rate and exchange rate targets simultaneously because increasing the money supply results in a depreciation of the currency. In the years following the Single European Act, the EU has liberalised its capital markets, and as the ECB has chosen monetary autonomy, the exchange rate regime of the euro is flexible, or floating.
Against other major currencies
After the introduction of the euro, its exchange rate against other currencies fell heavily, especially against the U.S. dollar. From an introduction at US$1.18/€, the euro fell to a low of $0.8228/€ by 26 October 2000. After the appearance of the coins and notes on 1 January 2002 and the replacement of all national currencies, the euro began steadily appreciating, and regained parity with the U.S. dollar, on 15 July 2002. The euro has not fallen below parity with the U.S. dollar since December 2002 but has risen in value.
Green: in Jan-1999: €1 = $1.18 ; in Jul-2008: €1 = $1.57
Red: in Jan-1999: €1 = ¥133 ; in Jul-2008: €1 = ¥168
Blue: in Jan-1999: €1 = £0.71 ; in Jul-2008: €1 = £0.80
On 23 May 2003, the euro surpassed its initial ($1.18) trading value for the first time. At the end of 2004, it reached $1.3668 (€0.7316/$) as the U.S. dollar fell against all major currencies. Against the U.S. dollar, the euro temporarily weakened in 2005, falling to $1.18 (€0.85/$) in July 2005, and was stable throughout the third quarter of 2005. In November 2005 the euro again began to rise steadily against the U.S. dollar, hitting one record high after another. On 15 July 2008, the euro rose to an all-time high of $1.5990 (€0.6254/$). In a reversal, in August 2008 the euro began to drop against the U.S. dollar. In just two weeks the euro fell from its peak to $1.48 and by late October it reached a two and a half year low below $1.25 before moving back above $1.50 by November 2009. On 29 December 2008, the pound sterling fell to an all-time low of £0.97855 (€1.0219/£) against the euro, although its value recovered somewhat in 2009. In February 2010, concerns over the solvency of Greece prompted fears that the monetary union may end, causing a rapid drop in the exchange rate against the dollar
| Year | Lowest ↓ | Highest ↑ | ||||
|---|---|---|---|---|---|---|
| Date | Rate | Date | Rate | |||
| 1999 | 03 Dec | $1.0015 | 05 Jan | $1.1790 | ||
| 2000 | 26 Oct | $0.8252 | 06 Jan | $1.0388 | ||
| 2001 | 06 Jul | $0.8384 | 05 Jan | $0.9545 | ||
| 2002 | 28 Jan | $0.8578 | 31 Dec | $1.0487 | ||
| 2003 | 08 Jan | $1.0377 | 31 Dec | $1.2630 | ||
| 2004 | 14 May | $1.1802 | 28 Dec | $1.3633 | ||
| 2005 | 15 Nov | $1.1667 | 03 Jan | $1.3507 | ||
| 2006 | 02 Jan | $1.1826 | 05 Dec | $1.3331 | ||
| 2007 | 12 Jan | $1.2893 | 27 Nov | $1.4874 | ||
| 2008 | 27 Oct | $1.2460 | 15 Jul | $1.5990 | ||
| 2009 | 05 Mar | $1.2555 | 03 Dec | $1.5120 | ||
| 2010 | 19 Feb | $1.3519 | 13 Jan | $1.4563 | ||
| Source: Euro exchange rates in USD, EC | ||||||
