F/X According to Oanda (2012), the Current

F/X

According to Oanda (2012), the current rates for the different currencies against the Euro are as follows:

Current Rate

USD

JPY

CHY

The current rate is of August 15, 2012 and this is compared against the rate on August 12, 2011.

There are a number of factors that go into currency exchange rates. One factor is the expected change in interest rates. This is known as interest rate parity. Under this theory, the "interest rate differential between two countries is equal to the differential between the forward exchange rate and the spot exchange rate." Interest rate parity is forward-looking, but if it had held there would have been some significant change in the interest rates between the European Central Bank and these other nations. That was not the case. The decline in the Euro appears to have occurred even though interest rates in these countries -- especially the U.S., Europe and Japan -- have not changed much in the past year. Interest rate parity was a bad predictor of value.

China is a different matter altogether. It is worth mentioning since it has a different regime, but of course for a business the yuan is worthless. It is only traded in China and Hong Kong, and its value is tied to the U.S. dollar. The PRC would like the yuan to be a relevant currency like the USD and the yen, but this is not the case in the real world. With trading only in the PRC and its SAR in Hong Kong, this allows the Chinese government to fix trading in the yuan within a daily band, tied to the U.S. dollar. The band has been widened once or twice in the past few years (BBC, 2012), but the yuan remains a currency that is not subject to free float, whose value does not reflect intrinsic value. As a result, the yuan's movements are within the context of the USD movements, and they are not subject to normal theories about currency movements.

If interest rate changes did not result in the decline of the value of the USD against the Euro, then other factors must explain it. The Euro has declined 13.3% in the past year against the dollar. A critical factor of course is uncertainty surrounding the future of the Euro, and by extension of interest rates within the Eurozone. Greece and Spain are among the Eurozone members with major domestic fiscal problems, and this weakens the entire zone. There remains significant economic uncertainty as well. While the U.S. also has some problems, they are not as severe as those facing the Euro. As a result, the Euro is facing a situation where its decline in value is somewhat speculative, but also somewhat warranted as the amount of money it will take to stabilize the Eurozone in its entirety will reduce the ability of European nations to grow their economies. That reduces the intrinsic value of the currency.