Monetary policy

How do exchange rate developments affect me?

As euro area residents, exchange rate movements affect us especially when we travel abroad. For example, if a person living in Spain wants to travel to the United States and the exchange rate against the dollar increases (i.e. the euro appreciates against the dollar), it will be cheaper for them to purchase goods and services in the United States.

Exchange rate movements also affect euro area firms. When the euro appreciates, it is cheaper to buy goods and services – such as supplies, components, commodities or energy – abroad. In other words, an appreciation of the euro makes it cheaper for firms to import the inputs they need. However, an appreciation of the euro will also lead to a decline in exports (euro area products sold outside the euro area), since it will be more expensive for importing countries to buy euro area products.

Conversely, if the euro were to depreciate, it would be more expensive for euro area firms to buy foreign goods and imports would decrease. However, exports would increase.