Exchange rates explained: reading EUR/USD

An exchange rate is the price of one currency in another. Currencies are quoted in pairs, and once you know how to read the pair, the rest follows.

How to read EUR/USD

In EUR/USD = 1.10, the first currency (the euro) is the base, and the number tells you how much of the second currency (the US dollar) one unit of the base buys. So one euro buys 1.10 dollars.

• If EUR/USD rises to 1.15, the euro has strengthened (or the dollar weakened): a euro now buys more dollars.
• If it falls to 1.05, the euro has weakened: a euro buys fewer dollars.

The same pair can be written the other way round (USD/EUR), which simply flips the number. Always check which currency comes first.

Why currencies move

Currencies trade around the clock between banks, companies and investors. Their price changes with supply and demand, which is shaped by:

• Interest rates. If one central bank pays noticeably more than another, money tends to flow towards the higher rate, lifting that currency. Expectations about future rate decisions matter as much as today’s rate (see central banks explained).
• Inflation. Over long periods, a currency whose prices rise faster tends to lose value.
• Growth and confidence. A stronger economy and stable politics attract investment.
• Trade. Countries that export a lot see steady demand for their currency.
• Risk mood. In times of stress, investors often move into currencies seen as safe, such as the US dollar or the Swiss franc.

Short-term moves are very hard to explain in advance, let alone predict. Many of these forces pull in different directions at the same time.

The ECB reference rate

Every working day, around 16:00 Central European Time, the European Central Bank publishes euro reference rates against about thirty currencies. They are a snapshot taken at one moment of the day and are widely used in accounts, contracts and statistics.

The ECB states that these rates are published for information purposes only. You cannot trade at them, and the rate you get from a bank or card provider will be different.

What a strong or weak euro means

	Stronger euro	Weaker euro
Holidays outside the euro area	Cheaper: your euros buy more	Dearer
Imported goods (energy, electronics)	Tend to get cheaper	Tend to get dearer, which can push up inflation
Exporters in the euro area	Their goods look pricier abroad	Their goods look cheaper abroad
Foreign investments, valued in euros	Lose value when converted back	Gain value when converted back

Neither is simply “good” or “bad”. A weak euro helps exporters and hurts importers and travellers; a strong one does the reverse.

Currency risk for investors

If you hold an investment priced in another currency, for example US shares or a fund that holds them, its value in euros depends on two things: the price of the investment and the exchange rate. This is currency risk.

Say a US share stays at exactly $100 for a year. If EUR/USD moves from 1.00 to 1.10, your share was worth €100 and is now worth about €91, a loss of about 9% without the share price moving. If the euro weakens instead, you gain. Some funds hedge (offset) currency moves for a cost; others do not. A fund’s documents say which.

Fees on currency exchange

Exchanging money nearly always costs something, often hidden in the rate:

• The spread or margin: the gap between the market rate and the rate you are given.
• Fixed fees per transfer or card payment.
• Dynamic currency conversion: when a card terminal or cash machine abroad offers to charge you in euros, the rate it uses can include a large margin.

Small percentages add up over many payments or a long investment. Our fees calculator shows how costs compound over time, and investment costs explains the main ones.

Follow the euro–dollar chart to see how the rate has moved.