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Level 5 Economics - European Euro

European Euro (EUR)
Central Bank: European Central Bank (ECB)
Current Interest Rate: Link here

The Dollar's Nemesis
Frankfurt, Germany, is where you will find the central bank of the 16 member nations of the Eurozone, the European Central Bank. Similar to the United States' FOMC, the ECB has a primary body that is responsible for making monetary policy decisions: the Executive Council. The council is composed of five members and headed by a president. The remaining policy heads are chosen on the basis that four of the seats are earmarked for the four largest economies in the system, which include Germany, France, Italy and Spain. This policy is in place to ensure that the largest economies in the Eurozone are always represented in the case of a change in administration. The council meets approximately 10 times a year. (Read more about this and other central banks discussed here in Get To Know The Major Central Banks.)

Along with having control over monetary policy, the ECB also holds the right to issue banknotes as it sees fit. Similar to the Federal Reserve, policymakers can interject at times of bank or system failures, much like the global financial crisis of 2008-2009.The ECB differs from the Fed in one very important area: rather than focusing on maximizing employment and maintaining stability of long-term interest rates, the ECB works toward a prime principle of price stability, giving general economic policies second billing. As a result, policymakers will often focus a great deal on consumer inflation in making key interest rate decisions. (Read more about how central banks control inflation in What Are Central Banks?)

Although the monetary body may seem quite complex, the currency is not. When paired with the U.S. dollar, the euro (EUR) tends to be a slower currency compared to its colleagues (i.e., the British pound or Australian dollar). On an average trading day, the base currency can trade between 30-40 pips, with the more volatile swings coming in at 60 pips wide per day. Another very important trading consideration is time. Trading in the euro-based pairs can be seen during the London and U.S. sessions (which occur from 3am through 12pm EST). (Read more about choosing the optimal time to trade in How To Set A Forex Trading Schedule.)

Japanese Yen


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RELATED TERMS
  1. European Central Bank - ECB

    The central bank responsible for the monetary system of the European ...
  2. Central Bank

    The entity responsible for overseeing the monetary system for ...
  3. Euro Notes

    Legal tender in the form of a banknote that can be used in exchange ...
  4. ECB Announcement

    An announcement by the European Central Bank (ECB) Governing ...
  5. Monetary Policy

    Monetary policy is the actions of a central bank, currency board ...
  6. Euro

    The official currency of the European Union's (EU) member states. ...
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    Read about some of the precise measures implemented in most monetary policies, and learn why monetary policy is considered ... Read Answer >>
  3. Under what circumstances will a government change its monetary policy?

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  4. Who determines interest rates?

    In countries using a centralized banking model, interest rates are determined by the central bank. In the first step of interest ... Read Answer >>
  5. What is the structure of the U.S. Federal Reserve Bank?

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