The Euro Exchange Rate Defies Forecasts The euro (the currency of 17 of the 27 member countries of the European Union or EU—see Case Study 14-2) was introduced on January 1, 1999, at the value of $1.17; however, defying almost all predictions (that it would appreciate to between $1.25 to $1.30 by the end of the year), it declined almost continuously to the low of $0.82 at the end of October 2000 (see Figure 15.8). The euro then appreciated to $0.95 at the beginning of 2001, only to fall again to below $0.85 at the beginning of July 2001, despite higher interest rates in the European Monetary Union (EMU) or Eurozone, the recession in the United States, and the terrorist attacks on the World Trade Center in New York and the Pentagon in September 2001—again defying most experts’ forecasts. Starting in February 2002, however, the euro appreciated almost continuously, reaching parity with the dollar in mid-2002, $1.36 at the end of 2004, the all-time high of $1.58 in July 2008, and it was $1.32 in March 2012. Only afterwards could experts “explain” the reasons for its movement.
CASE STUDY 15-8
The Euro Exchange Rate Defies
The euro (the currency of 17 of the 27 member countries of the European Union or EU—see Case Study 14-2) was introduced on January 1, 1999, at the value of $1.17; however, defying almost all predictions (that it would appreciate to between $1.25 to $1.30 by the end of the year), it declined almost continuously to the low of $0.82 at the end of October 2000 (see Figure 15.8). The euro then appreciated to $0.95 at the beginning of 2001, only to fall again to below $0.85 at the beginning of July 2001, despite higher interest rates in the European Monetary Union (EMU) or Eurozone, the recession in the United States, and the terrorist attacks on the World Trade Center in New York and the Pentagon in September 2001—again defying most experts’ forecasts. Starting in February 2002, however, the euro appreciated almost continuously, reaching parity with the dollar in mid-2002, $1.36 at the end of 2004, the all-time high of $1.58 in July 2008, and it was $1.32 in March 2012. Only afterwards could experts “explain” the reasons for its movement.
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