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.

What are the determinants of exchange rates?

A falling exchange rate reduces the purchasing power of income and capital gains from any returns. Additionally, the exchange rate affects other income factors such as interest rates, inflation, and even capital gains from domestic securities. So, understand these determinants of exchange rates to trade safely in the currency markets.

Why are currency exchange rates so important?

As one of the leading factors behind the economic health level of any given country, exchange rates are one of the most analysed economic measures on the planet. But what exactly influences currency exchange rates and why are they so important to everyone from governments and large financial institutions to small investors?