6 Factors that influence exchange rates

Exchange rates are in a constant state of fluctuation. Changing right now as you read this. But have you ever wondered why?
How it works? Like the value of anything else, a currency's value depends on supply and demands. when it comes to currencies ,
here are just few factors that can influence its value.

Government Intervention

Central banks influence exchange rates by buying or selling the domestic currency to stabilise it.

Current Account Deficits

It means a country is spending more on foreign trade than it's earning. If the country is making up the deficit by borrowing capital from foreign sources. It currency will depreciate in value.


Countries with large public debts are less attractive to foreign investors, due to fear of high inflation and chance of defaulting . This will decrease the currency value.


Generally, countries with consistently high inflation rates have low currency values. This is because its purchasing power decreases relative to others countries.

Interest Rates

A rise in interest rates in one country can offer investors a higher return, relative to other countries. This can make that country's currency value rise as it becomes more attractive to investors.


Most transactions in the foreign exchange market are speculative trades and these can have a direct impact on exchange rates.

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