currency paper

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Currency Exchange Rates: The Dollar, Euro, and Yen

Fluctuation among currencies can be attributed to political, economic, and social events that are currently happening in a society. Currency oscillations are a natural outcome of these events and can be analyzed to determine the forecast of an economy. The United States dollar is commonly evaluated against the European Euro and the Japanese Yen. Over the course of September 16-November 4, 2013 currency values fluctuated and several peaks and lulls can be examined to determine the causes and effects. Through the course of this project the European Euro had a period average of 0.7364 in relation to the United States dollar. The period high occurred on September 16 in which the currency exchange rate peaked at 0.7519. The period low was on October 28 with exchange rates reaching 0.7244. On September 18 the Federal Open Market Committees (FOMC) released and address, stating, the Committee will purchase mortgaged-backed securities at a rate of $40 billion per month, 5 billion lower than previous periods, and long-term Treasury securities will continued to be purchased at a rate of $45 billion per month. This decision was executed to continue placing downward pressure on longer-term interest rates and support the mortgage market in the hopes of continuing the economic recovery and ensure that inflation remains at a health percent. After this announcement was released, the USD/Euro currency exchange rate dropped dramatically from 0.7478 to 0.7389 over the course of 24 hours. This totaled at a 20.81% exchange rate decrease, allotting this as the largest exchange rate drop that was observed over the span of the assignment. As an effect of this announcement, the DOW and S&P 500 reported period record highs, and the NYSE traded about 7.39 billion shares. This result placed downward pressure on the value of the dollar and attracted foreign investors. This would allow foreign investors to gain more from their investment based on the high exchange rates. Although exchange rates increased, the opposite was seen in the stock market with a huge upswing and a small two-day surge. Domestic and foreign investors were anticipating a huge swing in which spending would be cut dramatically, which attributed to the decrease in rates, visible shown in the highlighted section of the graph below.
Exchange Rate of United States Dollar/European Euro

*The highlighted portion located on the left hand side of the chart shows the dramatic decrease in the exchange rate of the USD/EUR due to the FOMC’s announcement of decreasing the long-term Treasury securities rate. On the date of the announcement, September 18, the exchange rate was at 0.7478. Shortly after on September 20, the exchange rate fell to 0.7389. Throughout the duration of the assignment, the exchange rate between the U.S. Dollar and the Japanese Yen had numerous peaks in which the period high climaxed at 99.38. The period low hit at 96.94. The period average for the duration was 98.17. After analyzing these numbers, one major event shocked the exchange rate dramatically within a span of a several days. The government shutdown began on October 1st and continued until October 17 with the signing of a bill by President Obama to end the shutdown and extend the debt limit. These political and social events caused a major fluctuation between the USD and JPY exchange rates. On October 9, exchange rates between the Yen hit rock bottom during the peak of the shutdown. As the government continued to remain closed the currency exchange rate steadily increase here after, reaching a height of 98.55 on October 14th, soon after the re-opening bill was signed on October 17th the market began to stabilize.
Exchange Rate of United States Dollar/ Japanese Yen

*The highlighted portion on the graph shows the period in which the government shutdown
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