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US Dollar to Euro Exchange Rate

The US Dollar (USD) to Euro (EUR) exchange rate is the world's most traded pairing. Below are some facts about each currency and the history of the two.

US Dollar (USD)

Perhaps needing no introduction, the US Dollar, also known as the 'greenback' and the 'buck' is considered to be the world's reserve currency and is a favourite safe-haven for investors. One Dollar is subdivided into 100 cents, while its ISO code is USD and its currency symbol is $.

The Federal Reserve (aka the Fed) is the New York-based central bank which sets the long-term interest rates for the US economy and thereby exerts a strong effect on the value of the Dollar. The Federal Reserve is a consortium of private banks, meaning in theory that the US government is not able directly to control the rate of the Dollar on currency markets.

The US currency is able to exert a strong influence outside the borders of its home country, with many nations holding Dollar-denominated assets, including US Treasuries and stocks, while major commodities like oil and iron ore are often priced in USD on world markets.

Furthermore, some countries, such as Ecuador and the Bahamas, use the US Dollar as their official domestic currency. For this reason, there are thought to be in the region of $10.5 trillion extra Dollars in existence around the world outside of the US.

Euro (EUR)

The Euro turned 21 years old in 2020, having been launched as a shared currency across the 19 Eurozone member states in 1999 when Euro notes and coins were created. Initially called the ECU, the Euro was only in digital form originally. One Euro is subdivided into 100 cents, while its ISO code is EUR and its currency symbol is €.

Even though it was only launched in 1999, the Euro is one of the world's most traded currencies, with only the US Dollar (USD) traded more. The European Central Bank (ECB) is the sole issuer of Euros, and it is also the institution which sets interest rates across the Eurozone.

Not all EU countries use the Euro, with exceptions such as Denmark and Sweden who retained their own money and price goods and services in local currencies at a fixed exchange rate.

The USD / EUR Exchange Rate

The USD / EUR exchange rate is the most traded currency pairing in the world. The two currencies share an inverse relationship – if one rises the other usually falls. Because they are both regarded as reserve currencies due to the weight of backing by the economies behind them, they tend to play off one another.

In 2020, the USD / EUR exchange rate has fallen sharply from around €0.93 to around the €0.87 range, which represents an almost 6 percent decline.

From historical charts dating back to the launch of the Euro in 1999 we see that 1 USD reached an all-time high of over €1.2 in 2001, but has since declined significantly. The Dollar declined sharply against the Euro until around the time of the 2008 financial crisis – hitting lows of €0.62 – but has been on a generally recovering trend ever since.

Looking at price charts of the exchange rate pairing it is clear that the USD / EUR exchange rate moves in long term cycles, although it is impossible to predict when the next turning might be.

Factors Driving the USD / EUR Exchange Rate

The main driving factors for the relative strength of weakness of the USD rate are risk appetite and interest rates. With the world's strongest and largest economy behind it the US is seen as a safe-haven, so whenever there is an uptick in global risk (such as the current coronavirus scare) investors tend to flock to USD.

At the same time, with so many commodities being traded in USD, any shocks in commodity markets can have the effect of influencing the Dollar rate. Furthermore, any change in policy or rates from the US Federal Reserve can see investors flowing in or out of USD, which all has an effect on the USD / EUR rate.

The main factors that impact trade in the Euro on FX markets are ECB rates, Eurozone productivity and EU political news - with Britain’s decision to leave the EU having been a large driving force for EUR rates over the last four years. Many products and engineered good are made in the EU, with Germany is the Eurozone's main exporting country, so any drop in demand from these markets can have an impact on the Euro exchange rate.

It should also be stressed that the value of the US Dollar and the Euro affect one another i.e. even though there may be no external influence on one of them, the relative strength of the other will affect it.

Outlook for USD / EUR

The USD / EUR exchange rate today is influenced mostly by geopolitical risk appetite, the COV-19 virus outbreak and ongoing US-China trade discussions. With most central banks - including the ECB and the Federal Reserve - opting to pursue very low lending rate policies, FX markets remain fixated on risk rather than economic data or fundamentals.