EU Unemployment Weakens the Euro

Steps:

• Identify the diagram's implication: The Euro's value likely decreased against the USD, as shown by exchange rate changes.
• Recall exchange rate determinants: Currency value falls with weaker economic conditions in the issuing region.
• Link to options: Evaluate how each affects Euro demand or supply in forex markets.
• Select the factor that reduces investor confidence and Euro demand: Rising unemployment signals economic slowdown.

Why C is correct:

• Higher EU unemployment indicates economic weakness, reducing foreign investment in Euros and causing depreciation per the balance of payments theory.

Why the others are wrong:

• A: Lower US rates make USD less attractive, strengthening the Euro, not weakening it.
• B: More EU imports increase USD demand, strengthening USD and weakening Euro—opposite effect.
• D: Incomplete option; "increase in Euro US dollar" is unclear and doesn't specify a causal economic factor.

Final answer: C