The euro to dollar exchange rate is the price at which the world demand for US dollars equals the world supply of euros. Regardless of geographical origin, a rise in the world demand for euros leads to an appreciation of the euro.
Factors affecting exchange rates
Four factors are identified as fundamental determinants of the real euro to dollar exchange rate:
- The international real interest rate differential
- Relative prices in the traded and non-traded goods sectors
- The real oil price
- The relative fiscal position
