European Currencies

European currencies have gained in importance in the last twenty years and have suffered some major crises due to the continued attempt to peg exchange rates to each other. In the late eighties, playing the interest rate spreads between high and low interest rates between currencies - that were fixed - provided easy profits for speculators. Or at least, so it seemed until the major devaluations in 1992-93 forced a long-needed realignment between economies that were severely out of sync.

The key to Continental European currencies has been the German mark-French franc Axis that was seen as the backbone of the common currency, the Euro. The Benelux countries have benefited from long-term stability as well, whereas most Mediterranean and Scandinavian currencies have fluctuated wildly against this European core.

The introduction of a common currency in 2001 spelled big changes to foreign exchange trading in Europe. As early as 1998, the participating currencies were fixed against each other and this has forced many European banks to reconsider many of their trading activities.

Overall, however, we do not consider the introduction of the Euro to be particularly detrimental to foreign exchange markets. A weaker Euro has taken the place of the mark and non-participating European currencies will become more volatile and more vulnerable to speculative attacks. This will spell a new dawn for sterling trading that will become the main national currency market (together with the Swiss franc) in Europe.