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As of late, the value of the dollar has appreciated compared to other currencies, and one currency that the effects are evident in is the euro. The fall of the euro has been increased due to the willingness of investors to move their assets out of the Eurozone, and into “safe havens” like the U.S., Denmark, and Switzerland. The difference between the European and American monetary policies has been a catalyst for investors reallocating their portfolios, looking for bigger gains. A major difference playing a role is that euro will be further pushed down against the dollar, as the European Central Bank is holding interest rates, while the U.S. Fed Reserve is looking to raise the rates.
The European Central Bank pushed interest rates and the rate that it pays on commercial-bank deposits to nearly zero or below it and began quantitative easing. Though the euro has fallen, the European stocks rallied due to investors buying riskier assets like stocks, though others are investing outside of the Eurozone.
European investors have more reason to look abroad for investment returns, as the European Central Bank's waves of quantitative easing are occurring as European governments are trimming budgets; thus, the European governments are issuing fewer bonds. Europeans are paying high prices for scarce assets in the Eurozone, and are losing the cash that they may need in the future, especially so if the euro continues to depreciate in value.
Prior to the financial crisis, central banks of several nations bought reserves of American dollars to keep their own currencies from rising in value; however, when the euro was introduced, those banks began to diversify to the new currency. In recent years, the frequency of foreign-currency trades and accumulation has decreased, which has directly impacted the euro. An example could be China, who backed away from foreign-currency accumulation as a direct policy measure.
The outflow of cash from the Eurozone has economically impacted several other nations such as the United States, Denmark, and Switzerland. The United States has had the value of the dollar rise this year due to the massive demand from European investors, which could lead to other long- term economic implications. In Denmark, the central bank cut interest rates four times within this year to discourage foreign investors from buying the Danish krone. In Switzerland, they were forced to remove the cap on the Swiss franc, which holds the franc at a fixed exchange rate with the euro, due to the increase of the value of the franc. An expensive franc, comparatively on the world market, could be considered detrimental to the Swiss economy, as they are heavily reliant on exporting goods and services abroad.
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