What Affects Currency Rates?

Currencies move daily due to many factors. Here are the key ones:

1. Central Banks

Higher interest rates = stronger currency. Lower = weaker.

Example: If the U.S. Fed raises rates, the Dollar strengthens.

2. Inflation

High inflation weakens a currency. Stable inflation supports it.

Example: Turkey’s high inflation weakens the Lira.

3. Trade Balance

Export surplus strengthens a currency. Import deficit weakens it.

Example: Oil exporters rise when oil prices go up.

4. Growth

Strong GDP = stronger currency. Recession = weaker currency.

Example: India’s strong growth supports the Rupee.

5. Politics

Stable government = stronger currency. Unrest = weaker.

Example: Brexit uncertainty weakened the Pound.

6. Commodities

Export-linked currencies move with commodity prices.

Example: Canadian Dollar rises with oil.

7. Safe Haven Demand

In crises, money flows to USD, Yen, and Swiss Franc.

Example: USD surged in 2008 crisis.