The US dollar is the world's primary reserve currency, held by central banks across the globe. The euro is the second most important reserve currency and the official money of 20 European Union countries. Together they form the most traded currency pair in foreign exchange markets.
The Federal Reserve and the European Central Bank are the two institutions with the most power over this exchange rate. When one raises interest rates while the other holds steady, money flows toward the higher yield, moving the exchange rate. Economic data releases from both sides of the Atlantic also shift the rate throughout each trading day.
Historically, the euro has traded both above and below parity with the dollar. After its launch in 1999, the euro dropped as low as 0.82 against the dollar before climbing all the way to 1.60 during the 2008 financial crisis. In 2022 it briefly dipped below parity again.