What factors affect currency exchange rates?

Here are some of the top factors that can affect an exchange rate: 1. Inflation Rates Changes in market inflation cause changes in currency exchange rates. A country with a lower inflation rate than another's will see an appreciation in the value of its currency. The prices of goods and services increase at a slower rate where the inflation is low.

How do interest rates affect exchange rates?

Interest rates are a powerful tool for influencing exchange rates, as they directly affect the return on investments denominated in a particular currency. Higher interest rates tend to attract foreign capital, leading to an appreciation of the currency.

How does economic health affect currency exchange rates?

The economic health or performance of a country significantly influences exchange rates. For instance, low unemployment rates indicate that citizens have more disposable income, contributing to a stronger economy. A robust economy attracts more foreign investment, which helps reduce inflation and increase the country’s currency exchange rate.