Exchange rates and interest rates


Data extracted in April 2020.

Planned article update: May 2021.

Highlights

Between 2009 and 2019 the euro depreciated overall by 1.5% against the pound sterling, 19.7% against the United States dollar and by 26.3% overall against the Swiss franc.

In 2019, the highest bond yields were recorded by Romania, Greece, Hungary and Poland (above 2.00%), while negative yields were recorded in the Netherlands (-0.07%), Luxembourg (-0.12%), Denmark (-0.18%) and Germany (-0.25%).

Exchange rates against the euro, 2009-2019

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 United States dollar, Japanese yen, the United Kingdom’s pound sterling, Chinese renminbi-yuan and Swiss franc (all of which are important reserve currencies and/or commonly used for denominating international loans).

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.

Full article

Exchange rates

Table 1 shows the annual average exchange rates between the euro and a selection of European currencies, as well as the Chinese renminbi-yuan, the Japanese yen and the United States dollar, between 2009 and 2019. The development of these exchange rates is also shown in the four different charts that make up Figure 1, where the currencies are grouped together according to the magnitude of their various exchange rates against the euro. Note that the exchange rates for currencies of EU Member States that do not use the euro are shown in different shades of blue. Among these, 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.

Table 1: Exchange rates against the euro, 2009-2019
(1 EUR = … national currency)
Source: Eurostat (ert_bil_eur_a), ECB

Focusing on the exchange rates of non-euro area Member States, between 2009 and 2019, the euro appreciated most strongly against the Hungarian forint (13.8 %) and the Romanian leu (10.7 %). Throughout the period 2009-2019 there were relatively small fluctuations in the exchange rates between the euro and the currencies of Croatia and Denmark, with the overall appreciation of the euro 1.1 % and 0.3 % respectively. By contrast, the euro depreciated slightly against the Swedish krona (0.3 %), the Polish zloty (0.7 %) and the Czech koruna (2.9 %). The exchange rate between the euro and the Bulgarian lev was unchanged during the period under consideration.

Figure 1 also shows the development of the euro against a number of European currencies of non-member countries. The euro depreciated at a rapid pace against the Swiss franc between 2009 and 2011, with a period of relative stability between 2011 and 2014. This 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 12.1 % in 2015 against the Swiss franc and despite a modest appreciation in the value of the euro in 2016, 2017 and 2018, between 2009 and 2019 the euro depreciated by 26.3 % overall against the Swiss franc. Between 2009 and 2019, the euro also depreciated strongly against the Icelandic króna (which had been particularly impacted by events linked to the global financial and economic crisis) by 2019 the euro had depreciated 20.5 % against the Icelandic króna when compared with the situation in 2009. More modest depreciations of the euro over the same period (2009-2019) were observed against the Albanian lek (6.9 %) and the pound sterling (1.5 %). The overall depreciation against the pound sterling reflected falls in the value of the euro in 2010, 2012, 2014, 2015 and 2019 which collectively were slightly greater than the increases in the value of the euro in other years, in particular the large appreciation of the euro against the pound sterling in 2016.

Against the four other European countries shown in Figure 1 the euro appreciated between 2009 and 2019. During the years shown in Figure 1 there was little movement in the exchange rate between the euro and the Macedonian denar (overall appreciation of the euro of 0.4 %); the denar has been pegged against the euro since 2002 with the goal of achieving price stability. Developments against the Norwegian krone were in two distinct stages: the euro depreciated for three consecutive years between 2009 and 2012 before appreciating for the next seven years to finish with an overall appreciation of 11.4 % between 2009 and 2019. There was a somewhat irregular development against the currencies of Serbia and to a lesser extent Turkey, but with a clear and relatively strong appreciation of the euro, up 20.3 % between 2009 and 2019 against the Serbian dinar and 66.0 % against the Turkish lira. Note however that in the most recent years (2017, 2018 and 2019) the euro has depreciated against the Serbian dinar.

Figure 1 also shows exchange rate developments for three non-European reserve currencies, those of the United States, China and Japan. The exchange rate between the euro and the United States dollar initially remained relatively unchanged— the euro depreciating slightly — up until 2014. In 2015, there was a considerably sharper depreciation in the value of the euro against the United States dollar (16.5 %), followed by relatively small fluctuations in the most recent years; as a result, the euro depreciated by 19.7 % against the dollar between 2009 and 2019. There were several years of marked depreciation in the value of the euro compared with the Chinese renminbi-yuan during the period 2009-2015, interrupted by a few smaller appreciations (2011, 2013 and 2014). However, in three of the four most recent years for which data are available, the euro appreciated relatively strongly against the renminbi-yuan. Over the whole period 2009 to 2019 the euro depreciated 18.8 % against the Chinese currency. There was a marked depreciation in the value of the euro compared with the Japanese yen during the period 2009-2012. This situation was reversed in 2013 and 2014 as the euro appreciated in value. However, there were further depreciations in the value of the euro against the yen in 2015 and particularly in 2016, followed by more modest appreciations in2017 and 2018; by 2018 the euro:yen exchange rate was almost identical to that in 2009. A further depreciation in the value of the euro in 2019 resulted in an overall depreciation of the euro against the yen of 6.4 % between 2009 and 2019.

Figure 1a: Exchange rates against the euro, 2009-2019
(1 EUR = … national currency)
Source: Eurostat (ert_bil_eur_a)


Figure 1b: Exchange rates against the euro, 2009-2019
(1 EUR = … national currency)
Source: Eurostat (ert_bil_eur_a)


Figure 1c: Exchange rates against the euro, 2009-2019
(1 EUR = … national currency)
Source: Eurostat (ert_bil_eur_a)


Figure 1d: Exchange rates against the euro, 2009-2019
(1 EUR = … national currency)
Source: Eurostat (ert_bil_eur_a)

Interest rates

The overall pattern of bond yields for the EU-27 (weighted) average was that yields were lower in 2019 than they had been in 2014; 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 (see Figure 2). In the EU-27, bond yields in 2014 (2.21 %) were more than three times as high as in 2019 (0.71 %), with the change for the euro area even greater, as bond yields in 2014 (2.04 %) were 4.6 times as high as in 2019 (0.44 %). As such, bond yields in the EU-27 fell by 1.50 percentage points between 2014 and 2019, while the corresponding change for the euro area was a fall of 1.60 points.

Yields fell by more than 2.00 percentage points in 11 of the 26 EU Member States for which data are available (no data available for Estonia) between 2014 and 2019, and in most of the other cases they fell by 0.90-2.00 points. There were two exceptions where bond yields fell by less than 0.90 points: in Czechia, they fell marginally from 1.58 % in 2014 to 1.55 % in 2019; in Romania, they increased marginally from 4.49 % to 4.54 %. The largest reductions (in percentage point terms) in bond yields between 2014 and 2019 were recorded for Cyprus and Greece — both of which were heavily impacted by the global financial and economic crisis and subsequent sovereign debt crisis — as historically high yields were reduced as the economic and financial situation stabilised.

Romania, Greece, Hungary and Poland were the only EU Member States to record bond yields that were above 2.00 % in 2019. There were 18 Member States where yields were below 1.00 %, 15 of which had yields below 0.50 % including four with negative yields: the Netherlands (-0.07 %), Luxembourg (-0.12 %), Denmark (-0.18 %) and Germany (-0.25 %).

Figure 2: EMU convergence criterion bond yields
(Maastricht criterion), 2014 and 2019
(%)
Source: Eurostat (tec00097), ECB

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 so Figure 3 shows a time series after they had already fallen at a rapid pace between 2008 and 2009 as the effects of the global financial and economic crisis were felt. Interbank rates generally continued to fall thereafter, 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 %; indeed, this was the case in Japan for the whole of the time series shown in Figure 3 as well as for the United Kingdom from 2010 to 2019 and for the euro area from 2012 to 2019. Average short-term interest rates in the euro area turned negative (-0.02 %) in 2015 and this situation has remained each year since, with the rate in 2019 equal to -0.36 %. By contrast, there was an upturn in interbank rates in the United States, as rates rose for five consecutive years after 2014, climbing to reach 2.33 % in 2019.

Figure 3: Short-term interest rates — three-month interbank rates
(annual average), 2009-2019
(%)
Source: Eurostat (tec00035), ECB

Figure 4 shows the same rates in the same markets, but is supplemented by information pertaining to all of the other EU Member States that are not in the euro area. Although the most substantial falls in money market rates were often recorded in 2009 and 2010, interbank rates were still higher in 2014 (compared with 2019) for the majority of these Member States; Czechia and Romania recorded higher rates in 2019 than in 2014. In the euro area, the interbank rate fell from 0.21 % in 2014 to below zero (-0.36 %) in 2019, while Sweden and Denmark also reported negative rates in 2019.The annual average of interbank rates in Japan was also just below zero (-0.08 %) in 2019. The United Kingdom and the United States had different developments, insofar as they not only recorded positive interbank interest rates in 2019 (0.81 % and 2.33 % respectively), but these were both higher than the rates recorded in 2014, considerably so in the case of the United States.

Figure 4: Short-term interest rates — three-month interbank rates
(annual average), 2014 and 2019
(%)
Source: Eurostat (tec00035) and (irt_st_m), ECB

Figure 5 shows the euro yield curve between 2009 and 2019 for central government bonds with various years remaining to maturity. Yields were relatively high just before the onset of the financial and economic crisis in 2008 and had already fallen to some extent by 2009 and continued to do so. Bond yields for almost all maturities fell most years through to a low in 2016 before increasing somewhat in 2017 and stabilising in 2018. However, in 2019 yields were again at a historic low for almost all maturities, the only exceptions being for one or two years to maturity. In 2019, bonds with 12 or fewer years to maturity had negative yields and bonds with 30 years to maturity offered a yield of just 0.44 %.

Figure 5: Euro yield curve, 2009-2019
(%)
Source: Eurostat (irt_euryld_a), ECB

Source data for tables and graphs

Data sources

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.

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. From 2009 onwards the official rate for the Icelandic króna (ISK) is shown for indicative purposes.

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.

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.

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.

From 1 January 2002, euro 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.

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ECU/EUR exchange rates versus national currencies (tec00033)
Euro/national currency exchange rates (teimf200)
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)
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)