On 25 September 2026, one euro bought $1.14. In October 2000, it bought 83 cents. In April 2008, it bought $1.60.
An exchange rate is the price of one currency in another. Here is how to read a currency quote, how the price is set and what moves it, using the euro against the US dollar as the example.
How do exchange rates work? An exchange rate is the price of one currency in terms of another. Buyers and sellers set it in the currency market, which trades around the clock on weekdays.
A EUR/USD rate of 1.14 means one euro costs $1.14. Turned round, one dollar costs €0.88.
Interest rates are a major force. When US rates rose far above euro rates in 2022, the euro fell below $1 for the first time since 2002.
Inflation, trade and investors' appetite for risk move exchange rates too.
How to read a currency quote
Currencies are quoted in pairs. In EUR/USD, the euro comes first. It is the base currency. The dollar is the quote currency. The number tells you how many dollars one euro costs.
At 1.14:
€1,000 of holiday money costs a US traveller $1,140.
A US company paying a €10 million invoice pays $11.4 million.
To turn the quote round, divide 1 by it. 1 ÷ 1.14 = 0.8772. So one dollar buys €0.8772.
A bank quoting EUR/USD gives two prices. It might buy euros at 1.1399 and sell them at 1.1401. The gap between the two is the spread, which pays the bank for taking the other side. The fourth decimal place is called a pip, so that spread is 2 pips.
Who sets the price
There is no single exchange for currencies. Banks, funds, companies, central banks and travellers trade with each other directly or through dealer banks.
In April 2025, currency trading averaged $9.6 trillion a day, according to the Bank for International Settlements. The US dollar was on one side of 89% of all trades.
Every trade is someone swapping one currency for another. When more people want euros than want to sell them, the price of a euro rises.
The euro against the dollar since 1999
Source: FRED (DEXUSEU); YX Insights
The chart shows EUR/USD since the euro was launched in January 1999:
January 1999: $1.18 per euro on the first trading day.
October 2000: a low of $0.83.
April 2008: a high of $1.60.
September 2022: $0.96, after the euro fell below $1 in August for the first time since December 2002.
25 September 2026: $1.14.
What moves exchange rates
Interest rates. Money flows towards higher returns. If US deposits and bonds pay more than euro ones, money tends to move out of euros into dollars. That pushes the dollar up.
2022 shows it clearly. The European Central Bank (ECB) kept its deposit rate below zero until July 2022. The Federal Reserve began raising its rate from near zero in March 2022. The gap between the Fed's rate and the ECB's deposit rate widened from 0.58 points in January 2022 to 2.33 points in October. Over the same period, EUR/USD fell from $1.13 to a low of $0.96.
Source: FRED (DFF, ECBDFR); YX Insights
The link is loose over longer stretches. Since 2014, the monthly correlation between the rate gap and EUR/USD has been −0.37. Correlation runs from −1 to +1. A wider US rate lead has gone with a weaker euro, but other forces often matter more.
Inflation. Over long periods, a currency whose prices rise faster tends to buy less abroad.
Trade and investment. A country that sells more abroad than it buys earns foreign currency. Its exporters sell that currency to buy their own, which supports it.
Risk appetite. The dollar has often risen in a crisis. In 2008, EUR/USD fell from $1.60 in April to $1.24 by late October.
The picture in 2026
Both central banks raised rates in 2026. The ECB lifted its deposit rate twice, to 2.50% from 16 September. The Fed raised its target range to 3.75% to 4%. We explain how the Fed sets that range in How the Fed Sets Rates.
The rate gap stood at 1.38 points on 1 October 2026. EUR/USD has traded between $1.13 and $1.20 this year.
What exchange rates mean for investors
A foreign investment carries two returns: the asset's own return and the currency move.
Say a US investor buys European shares that rise 10% in euros. If the euro falls 10% against the dollar over the same period, the investor ends up with 1.10 × 0.90 = 0.99. That is a 1% loss in dollars.
Funds can hedge this risk, at a cost that depends on the interest rate gap. Unhedged, the currency becomes part of the bet.
An exchange rate is a price like any other. Interest rates, inflation, trade and fear all push on it. When you hold anything abroad, that price is part of your return.
Learn more with YX Insights
This explainer is part of the YX Insights Academy. Each one takes a single idea and checks it against real data.
The same approach runs through everything else we publish:
Systematic Portfolio: ready-made portfolios for Macro & Megacaps and for Commodities. We publish the holdings and every change.
Multi-model Signals: a daily long-or-flat call on every name we cover. Each call shows how strongly our four models agree.
Research: company deep dives, macro commentary and essays on how we test.
Good places to start on the website:
Academy: more explainers like this one.
Start here: get our free weekly letter by email.
Macro & Megacaps Systematic Portfolio and Commodities: the two portfolios in detail.
Track record: live results since 3 August 2026, plus the ten-year backtest.
Upgrade: get the Systematic Portfolio, Multi-model Signals and research in full.
DISCLAIMER: This article is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.