What affects currency exchange rates?

Generally speaking, exchange rate movement relies solely on macroeconomic factors – “big picture” issues and concepts. Significant movements in exchange rate can be attributed to three main factors:

Interest Rates
Each currency has a central bank, and this central bank issues an overnight lending rate. This is a prime gauge of a currency’s value. In recent history, low interest rates have resulted in the devaluation of a currency.

Unemployment Rate
The unemployment rate is a strong indicator of a country’s economic strength. When unemployment is high, the economy may be weak – and hence its currency may fall in value.

Geopolitical Events
Like all markets, the currency market is affected by what is going on in the world. Key political events around the world can have a big impact on an economy and the value of its respective currency.

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