Exchange rates and interest rates

Data extracted in April 2017. Most recent data: Further Eurostat information, Main tables and Database. Planned article update: April 2018.

This article presents an analysis of exchange rates and interest rates; which are some of Eurostat’s most frequently updated statistics. It is important to note that practically all of Eurostat’s data in monetary terms are denominated in euro (including statistics for European Union (EU) Member States that are not part of the euro area and data for non-member countries). This information is derived by converting from data in national currencies to data in euro (EUR — see currency codes). As such, for most of the statistics that are released by Eurostat, it is necessary to bear in mind the possible effect of currency fluctuations when making comparisons across countries for indicators denominated in euro terms, in particular when analysing time series.

This article starts by considering the development of exchange rates across the EU, as well as exchange rate fluctuations between the euro and several currencies of non-member countries, in particular the Japanese yen, the Swiss franc and the United States dollar (all of which are important reserve currencies). The second half of the article examines interest rates — in other words, the cost of lending/borrowing money. At the macroeconomic level, key interest rates are generally set by central banks, as a primary tool for monetary policy with the goal of maintaining price stability and controlling inflation.

Table 1: Exchange rates against the euro, 2006–2016
(1 EUR = … national currency)
Source: Eurostat (ert_bil_eur_a), ECB
Figure 1a: Exchange rates against the euro, 2006–2016
(2006 = 100)
Source: Eurostat (ert_bil_eur_a)
Figure 1b: Exchange rates against the euro, 2006–2016
(2006 = 100)
Source: Eurostat (ert_bil_eur_a)
Figure 1c: Exchange rates against the euro, 2006–2016
(2006 = 100)
Source: Eurostat (ert_bil_eur_a)
Figure 1d: Exchange rates against the euro, 2006–2016
(2006 = 100)
Source: Eurostat (ert_bil_eur_a)
Figure 2: EMU convergence criterion bond yields (Maastricht criterion), 2011 and 2016
(%)
Source: Eurostat (tec00097), ECB
Figure 3: Short-term interest rates — three-month interbank rates (annual average), 2006–2016
(%)
Source: Eurostat (tec00035), ECB
Figure 4: Short-term interest rates — three-month interbank rates (annual average), 2011 and 2016
(%)
Source: Eurostat (tec00035) and (irt_st_m), ECB
Figure 5: Euro yield curve, 2006–2016
(%)
Source: Eurostat (irt_euryld_a), ECB

Main statistical findings

Exchange rates

Table 1 shows the annual average exchange rates between the euro and a selection of European currencies, as well as the Japanese yen and the United States dollar between 2006 and 2016. The development of these exchange rates is shown in the four parts of Figure 1, presented as an index starting in 2006 (with the value for 2006 set to equal 100): this transformation makes it easier to see how the exchange rates have developed over time, regardless of differences in the magnitude of the various exchange rates.

The indices presented in the various parts of Figure 1 start in 2006, towards the end of a period when the euro was still appreciating from historically low levels against many other currencies.

The first two parts of Figure 1 show the development of exchange rates between the euro and the nine national currencies that continue to be used in the EU Member States that do not use the euro. Note that non-euro area members may fix their exchange rates against the euro as part of the exchange rate mechanism (ERM II) in preparation for joining the euro area and this explains some of the very stable euro exchange rates: Denmark is the only current member of ERM II. Between 2006 and 2016, the euro appreciated most strongly against the Romanian leu (27.4 %). Although the euro had appreciated quite strongly against the pound sterling between 2006 and 2009 it subsequently depreciated, particularly in 2014, 2015 and the first half of 2016, although this pattern was reversed during the second half of the year (following the Brexit vote) as the euro once again appreciated. Over the whole period shown in Figure 1 the euro appreciated by 20.2 % against the pound sterling. The euro also appreciated by at least 10 % against the currencies of Hungary and Poland, and by 2–3 % against those of Croatia and Sweden. Throughout the period 2006–2016 there was little change in the exchange rate between the euro and currencies of Bulgaria and Denmark. By contrast, the euro depreciated most years against the Czech koruna between 2006 and 2011, before appreciating between 2011 and 2014, and then subsequently depreciating once more in both 2015 and 2016, such that over the whole period the euro depreciated by 4.6 %.

The third part of Figure 1 shows the development of the euro against a number of European currencies of non-member countries. Between 2007 and 2009, the euro appreciated strongly against the Icelandic króna before depreciating, relatively gradually thereafter, aside from an appreciation in 2013; by 2016 the euro was 52.2 % higher against the Icelandic króna than it had been in 2006. The euro also appreciated strongly, but with a more regular development, against the currencies of Turkey (up 84.8 % between 2006 and 2016) and Serbia (46.4 %); a similar but weaker development was observed against the Albanian lek (11.6 %). Developments against the Norwegian krone were less regular, with the euro appreciating slightly in 2008 and 2009, before depreciating for three consecutive years and then appreciating again during the period 2014–2016 to finish some 15.5 % higher in 2016 than in 2006. During the years shown in Figure 1 there was little movement in the exchange rate between the euro and the denar of the former Yugoslav Republic of Macedonia; the denar has been pegged against the euro since 2002 with the goal of achieving price stability.


The fourth and final part of Figure 1 concerns three reserve currencies, those of Switzerland, Japan and the United States. There was a marked appreciation in the value of the euro compared with the Japanese yen in 2007 (10.4 %) after which the euro depreciated rapidly, falling, on average, by 9.5 % per year between 2007 and 2012. The euro appreciated again between 2012 and 2014 (14.5 % per year) bringing the exchange rate back close to its level in 2006. However, there were further depreciations in the value of the euro against the yen in 2015 and particularly in 2016, by when the value of the euro against the yen was 17.7 % lower than it had been a decade earlier in 2006. Initially, a similar pattern was observed against the United States dollar, with the euro appreciating on average by 7.6 % per year during the period 2006–2008. Thereafter, a more gentle but less regular depreciation was observed through to 2014 (-2.1 % per year), followed by a considerably sharper depreciation (-19.7 %) in 2015 and almost no change in 2016 (-0.2 %), such that the euro was worth 11.8 % less against the dollar in 2016 than it had been in 2006. By contrast, there was a relatively low degree of fluctuation between the euro and the Swiss franc during the period 2006–2009, with the exchange rate varying by less than 5 %. Thereafter, the euro depreciated at a rapid pace against the Swiss franc, with a period of relative stability between 2011 and 2014This resulted from the Swiss central bank introducing a minimum exchange rate of CHF 1.20 = EUR 1.00 in September 2011, effectively capping the Swiss franc’s appreciation. This minimum exchange rate was maintained until 15 January 2015: after its removal the Swiss franc appreciated 30 % in inter-day trading; the euro depreciated by 13.7 % in 2015 against the Swiss franc and despite a modest appreciation in the value of the euro in 2016 (2.0 %), the euro remained 30.7 % lower against the Swiss franc in 2016 than it had been in 2006, equivalent to an average annual fall of 3.6 %.

Interest rates

The overall pattern in bond yields (see Figure 2) for the EU-28 (weighted) average was that yields were considerably lower in 2016 than they had been in 2011; the earlier of these two periods was characterised by yields having been relatively high in some of the EU Member States due to issues linked to the financing of their sovereign debt. In the EU-28, bond yields in 2011 (4.27 %) were almost four times as high as in 2016 (1.11 %), with the change for the euro area even greater, as bond yields in 2011 (4.34 %) were slightly more than five times as high as in 2016 (0.86 %). As such, bond yields in the EU-28 fell by 3.16 percentage points between 2011 and 2016, while the corresponding change for the euro area was 3.48 points.

Yields fell by more than 2.00 percentage points in in all of the EU Member States (no data available for Estonia) between 2011 and 2016, with three exceptions: in the United Kingdom, bond yields fell from 3.36 % in 2011 to 1.79 % in 2016; in Cyprus, they fell by just 0.06 points to 4.54 % in 2016; whereas bond yields in Greece rose marginally (up by 0.58 points) to 9.67 %in 2016. As well as recording the only increase in bond yields between 2011 and 2016, Greece’s yield in 2016 was, by far, the highest among the EU Member States, more than double the yield in Cyprus, which was the next highest.

Croatia, Romania and Hungary were the only EU Member States (aside from Cyprus and Greece) to record bond yields that were above 3.00 % in 2016, while there were 19 EU Member States where yields were below 2.00 % (12 of which had yields below 1.00 %). The lowest yields in 2016 among the Member States were recorded in Germany (0.50 %) and Luxembourg (0.37 %). The largest reductions (in percentage point terms) in bond yields between 2011 and 2016 were recorded in Lithuania and Ireland, where reductions of more than 4.00 points were recorded, while the decrease for Latvia was by far the largest, at 9.38 points.

Money market rates, also known as interbank rates, are interest rates used by banks for operations among themselves. In the money market, banks are able to trade their surpluses and deficits; Figures 3 and 4 show three-month interbank rates. In recent years, these rates peaked around 2007 or 2008 and fell at a rapid pace in 2009 as the effects of the global financial and economic crisis were felt. Subsequently, interbank rates generally continued to fall, although at a much more moderate pace. During the whole of the period 2012–2016, interbank rates for the euro area, the United Kingdom, Japan and the United States were consistently found within the range of -1.00–+1.00 % (this was the case in Japan for the whole of the time series shown in Figure 3). Average short-term interest rates in the euro area turned negative (-0.02 %) in 2015 and this pattern was continued in 2016 when the latest annual rate was -0.26 %.

Figure 4 shows the same rates in the same markets, but is supplemented by information pertaining to the EU Member States that are not in the euro area. Although the most substantial fall in money market rates was recorded in 2009, interbank rates were consistently higher in 2011 (compared with 2016) for each of these Member States. In the euro area the interbank rate fell from 1.39 % in 2011 to below zero (-0.26 %) in 2016, while Sweden and Denmark also reported negative rates in 2016.The annual average of interbank rates in Japan was also just below zero (-0.02 %) in 2016, whereas the United States had a different development, insofar as it not only recorded a positive interest rate in 2016 (0.74 %), but this was also higher than the rate recorded in 2011 (0.34 %).

Figure 5 shows the euro yield curve between 2006 and 2016 for central government bonds with various years remaining to maturity. In line with the pattern seen in Figure 3, yields were relatively high just before the onset of the financial and economic crisis, in 2007 or 2008. Regardless of the time to maturity, yields in 2016 were at a historic low, as bonds with less than nine years to maturity had negative yields and bonds with 30 years to maturity offered a yield of just 0.94 %.

Data sources and availability

Exchange rates

Eurostat publishes a number of different data sets concerning exchange rates. Two main data sets can be distinguished, with statistics on:

  • bilateral exchange rates between currencies, including some special conversion factors for countries that have adopted the euro;
  • effective exchange rate indices.

Bilateral exchange rates are available with reference to the euro, although before 1999 they were given in relation to the European currency unit (ECU). The ECU ceased to exist on 1 January 1999 when it was replaced by the euro at an exchange rate of 1:1. From that date, the currencies of the euro area became subdivisions of the euro at irrevocably fixed rates of conversion. From 2009 onwards the official rate for the Icelandic króna (ISK) is shown for indicative purposes.

Daily exchange rates are available from 1974 onwards against a large number of currencies. These daily values are used to construct monthly and annual averages, which are based on business day rates; alternatively, month-end and year-end rates are also published.

Interest rates

Interest rates provide information on the cost or price of borrowing, or the gain from lending. Traditionally, interest rates are expressed in annual percentage terms, although the period for lending/borrowing can be anything from overnight to a period of many years. Different types of interest rates are distinguished either by the period of lending/borrowing involved, or by the parties involved in the transaction (business, consumers, governments or interbank operations).

Long-term interest rates are one of the convergence criteria for European economic and monetary union (EMU). In order to comply, EU Member States need to demonstrate an average nominal long-term interest rate that does not exceed by more than 2 percentage points that of, at most, the three best-performing Member States. Long-term interest rates are based upon central government bond yields (or comparable securities), taking into account differences in national definitions, on the secondary market, gross of tax, with a residual maturity of around 10 years.

Eurostat also publishes a number of short-term interest rates, with different maturities (overnight, 1 to 12 months). A yield curve, also known as the term structure of interest rates, represents the relationship between market remuneration (interest) rates and the remaining time to maturity of government bonds.

Context

Interest rates, inflation rates and exchange rates are highly linked: the interaction between these economic phenomena is often complicated by a range of additional factors such as levels of government debt, the sentiment of financial markets, terms of trade, political stability, and overall economic performance.

An exchange rate is the price or value of one currency in relation to another. Those countries with relatively stable and low inflation rates tend to display an appreciation in their currencies, as their purchasing power increases relative to other currencies, whereas higher inflation typically leads to a depreciation of the local currency. When the value of one currency appreciates against another, then that country’s exports become more expensive and its imports become cheaper.

All economic and monetary union participants are eligible to adopt the euro. Aside from demonstrating two years of exchange rate stability (via membership of ERM II), those EU Member States aiming to join the euro area also need to adhere to a number of additional criteria relating to interest rates, budget deficits, inflation rates, and debt-to-GDP ratios.

Through using a common currency, the countries of the euro area have removed exchange rates and, therefore, hope to benefit from the elimination of currency exchange costs, lower transaction costs and the promotion of trade and investment resulting from the scale of the euro area market. Furthermore, the use of a single currency increases price transparency for consumers across the euro area.

From 1 January 2002, notes and coins entered circulation in the euro area, as 12 EU Member States — Belgium, Germany, Ireland, Greece, Spain, France, Italy, Luxembourg, the Netherlands, Austria, Portugal and Finland — adopted the euro as their common currency. Slovenia subsequently joined the euro area at the start of 2007, and was followed by Cyprus and Malta on 1 January 2008, Slovakia on 1 January 2009, Estonia on 1 January 2011, Latvia on 1 January 2014 and Lithuania on 1 January 2015, bringing the total number of countries using the euro as their common currency to 19.

Central banks seek to exert influence over both inflation and exchange rates, through controlling monetary policy — their main tool for this purpose is the setting of key interest rates. In joining the euro, each EU Member State agrees to allow the European Central Bank (ECB) to act as an independent authority responsible for maintaining price stability through the implementation of monetary policy. As of 1999, the ECB started to set benchmark interest rates and manage the euro area’s foreign exchange reserves. The ECB has defined price stability as a year-on-year increase in the harmonised index of consumer prices (HICP) for the euro area below, but close to, 2 % over the medium term (see the article on consumer prices - inflation and comparative price levels). Monetary policy decisions are taken by the ECB’s governing council which meets every six weeks (formerly every month) to analyse and assess economic and monetary developments and the risks to price stability and thereafter to decide upon the appropriate level of key interest rates.

See also

Further Eurostat information

Publications

Main tables

ECU/EUR exchange rates versus national currencies (tec00033)
Euro/national currency exchange rates (teimf200)
Real effective exchange rate - 37 trading partners (tsdec330)
Real effective exchange rate - 42 trading partners (teimf250)
Euro yield curve by maturity (1, 5 and 10 years) (teimf060)
EMU convergence criterion series - annual data (tec00097)
Long term government bond yields (teimf050)
Day-to-day money market interest rates (teimf100)
3-month-interest rate (teimf040)
Short-term interest rates: Day-to-day money rates (tec00034)
Short-term interest rates: three-month interbank rates (tec00035)

Database

Bilateral exchange rates (ert_bil)
Effective exchange rate indices (ert_eff)
Exchange rates - historical data (ert_h)
Euro yield curves (irt_euryld)
Long-term interest rates (irt_lt)
Short-term interest rates (irt_st)
Interest rates - historical data (irt_h)

Dedicated section

Methodology / Metadata

Source data for tables and figures (MS Excel)

Other information

  • Regulation 2866/98 of 31 December 1998 on the conversion rates between the euro and the currencies of the Member States adopting the euro

External links

Central banks within the European Union

Selected central banks outside the European Union

Bank for international settlements: