The euro was worth $1.11 on August 16, 2019. It meant that one euro could buy 11 cents more in goods and services than one dollar could. This is low compared to its peak of $1.60 on April 22, 2008. It means that your dollar can go further in the European Union in 2019 than it could back in 2008.
How the Exchange Rate Converts Euros to Dollars
The euro has a flexible exchange rate. It means that its exchange rate changes every day. This is because it’s traded on the foreign exchange market.
The euro’s value depends on three factors. The most important is the European Central Bank’s benchmark interest rate. Second, investors take into account the debt levels of individual countries, such as Greece. The third is the strength of the European economy.
Based on these factors, forex traders decide whether they think the currency will increase in value or not. When European economic growth is strong or when interest rates are rising, odds are traders will predict an increase in value. They then bid the price up. Others may read the same data and decide that the value of the currencies will decline instead. These traders bid the price down. The complex interactions of these factors determine the currency’s price at any given moment.
Despite this volatility, the EU allows the euro’s value to be decided by the forex market.
History of Euro to Dollar Conversion
2000 – 2002 – The euro traded within a narrow range in its first two years, between $0.87 and $0.99. It seldom broke above a dollar, until it was officially launched as a currency. Until 2002, it was used only for electronic transactions.
2002 – 2008 – The euro rose by 63 percent in just six years. During the same period, the U.S. debt grew by 60 percent. On January 1, 2002, a euro was worth a little more than $0.90. By the end of 2007, though, its value had skyrocketed to $1.46.
2008 – The euro started the year at $1.47. Investors remained confident that the subprime mortgage crisis would be confined for the most part to the United States. This led to the euro’s strength. As soon as they realized that the recession was going global, the euro fell to $1.39. Businesses then hoarded dollars during the 2008 financial crisis.
2009 – The euro started the year in a strong position, at $1.40. It then fell to the year’s low of $1.25 as the ECB increased its benchmark interest rate to 1.5 percent. This time, investors were concerned that the ECB was hasty in raising rates, thwarting any chance of an economic recovery in Europe. The risk of renewing a recession offset the possibility of a higher return in holding euros or euro-denominated bonds or investments.
The ECB realized that its strategy backfired and began lowering its prime rate. As a result, the euro’s value rose by 20 percent between March 3 and December 1. In addition, investors’ fears of the U.S. debt, which at that time was $13 trillion, caused them to flee the dollar and dollar-denominated bonds. By the end of 2009, the euro was worth $1.43.
2010 – The euro started the year at $1.44. It dropped by 17 percent against the dollar, hitting a low of $1.20 on June 10. Investors were worried about the weakness of the EU’s economy. It then rose to $1.42 by November, when the EU economy showed renewed signs of strength. This confidence didn’t last long though. The euro ended 2010 at $1.33.
2011 – The euro started the year at $1.34. It rose to a high of $1.47 in July. This happened for two reasons. Investors abandoned the dollar, thanks to the U.S. debt default crisis. At the same time, the ECB raised its key interest rate to 1.5 percent. It increased bank rates for anyone lending or saving in euros, thus raising the value of the currency itself.
As soon as the U.S. debt crisis was somewhat resolved, investors then fled the euro in response to a flare-up of the Greece debt crisis. It created doubts over the EU’s financial strength and even the future viability of the euro itself. By October 2011, the euro’s value had dropped to $1.33. It rose for a brief while as EU leaders met to resolve what had then become the eurozone crisis. By December, it was back to $1.30.
2012 – The worsening eurozone crisis pummeled the euro. Many wondered whether the eurozone itself would survive. The euro started the year at $1.27. It rose for a brief while to a high of $1.35 in February, as investors were calmed by an intergovernmental treaty agreed to in December 2011.
In May, the euro plummeted to $1.24 as the Greek debt crisis worsened. The government was put on hold when neither party won enough votes to elect a president. The future of Greece’s membership in the eurozone was uncertain until a pro-bailout president was elected June 17. The euro rose for a brief while to $1.27 on June 20. It fell back just as fast as the interest rates on Spanish and Italian bonds rose to the unsustainable 7 percent level. By August 2, the euro was only worth $1.22. The crisis was soon averted and by December 31, it had risen to $1.32.
2013 – The euro started the year at $1.32. It strengthened to $1.40 by February 1 in response to signs that the eurozone debt crisis was being addressed. Its strength could have hurt exports and the struggling EU economy. It fell a little in March to $1.30, though it recovered by November to $1.35. As the eurozone economy strengthened, so did the euro itself.
The ECB lowered its interest rate to 0.25 percent on November 7, 2013, in response to fears of deflation. This drove the euro’s value to $1.33. It ended the year up a bit at $1.38.
2014 – The euro started the year at $1.38. It rose to a high for the year at $1.39 on May 7, 2014. Though as the Ukraine crisis started to heat up, the euro began falling once again. It remained above $1.30 until September 4. When ECB Chair Mario Draghi, announced that he would begin quantitative easing, the euro immediately dropped by 1 percent to $1.30. It fell to a two-year low of $1.25 in November, when the ECB announced that it would keep interest rates low. It then fell to $1.21 by the year’s end on fears that Greece would drop out of the eurozone after its January 28 presidential election.
In 2015, some analysts predicted the euro would fall to parity. If that happened, a euro would equal $1.
Traders used the euro as part of a profitable carry trade. They shorted the euro, which had a low-interest rate. They use the funds to invest in British pounds, which paid a higher interest rate.
The markets calmed down after realizing that Brexit would take years. The euro rose to $1.13 on August 23. It then fell to its 2016 low of $1.04 on December 20, 2016. Italy’s presidential election increased the risk that its banks would not regain its health. It rose to $1.06 by December 30, 2016.