The Euro to US Dollar exchange rat is the price at which the world demand for US Dollars equals the world supply of Euros. Regardless of gegraphical origin, a rise in the world demand for Euros leads to an appreciation of the Euro.

Factors affecting the Euro to US Dollar exchange rate

Four factors are identified as fundamental determinants of the real Euro to US Dollar exchange rate:

1. The international real interest rate differential between the Federal Reserve and European Central Bank

2. Relative prices in the traded and non-traded goods sectors

3. The real oil price

4. The relative fiscal position of the US and Euro zone

The nominal bilateral US Dollar to Euro exchange is the exchange rate that attracts the most attention. Notwithstanding the comparative importance of bilateral trade links with the US, trade with the UK is, to some extent, more important for the Euro.