EURO 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. This explains why the exchange rate of the euro vis-à-vis other currencies is characterised by strong fluctuations. Most notable are the fluctuations of the euro versus the U.S. dollar, another free-floating currency. However this focus on the dollar-euro parity is partly subjective. It is taken as a reference because the euro competes with the dollar's role as reserve currency. The effect of this selective reference is misleading, as it gives observers the impression that a rise in the value of the euro versus the dollar is the effect of increased global strength of the euro, while it may be the effect of an intrinsic weakening of the dollar itself.

U.S. dollars per 1 euro 1999-2009

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		23 Oct	$1.5020
Source: Euro exchange rates in USD, ECB