We are hit with headlines every day about currency rate fluctuations, but what causes changes in currency rates and why should we care? This infographic from All Finance Tax investigates…  

Currency exchange rates are one of the most critical signals of a country’s economic health. Currency value fluctuations also matter on a smaller scale as well and they can have a significant effect on the day-to-day lives of individuals.

Over the past twelve months, we have seen some currency values enjoy record highs, while others have plunged to new record lows. The value of different currencies is constantly changing, but what exactly causes the value of a currency to rise or fall?

What Factors Contribute to Currency Rate Fluctuations?

In essence, the factors driving currency rate fluctuations boil down to the rule of supply and demand. For instance, a greater demand for American goods would bring about a rise in the value (appreciation) of the American Dollar. The balance of supply and demand can be tipped for a number of interrelated reasons. Some examples of these include:

  1. Inflation and interest rates
  2. Government intervention
  3. Monetary policy
  4. The political and economic climate
  5. Market speculation

Why How Do Currency Rate Movements Affect You?

The changing values of your native currency can have a significant effect on numerous aspects of your life.  If you are travelling abroad, the relative strength or weakness of your native currency may drive up or down the overall cost of your vacation.

The value of your currency will also have an impact on your living costs and your quality of life. Furthermore, currency fluctuations can influence the jobs market – either increasing or decreasing the number of available employment opportunities.

Scroll down to the infographic guide below to learn more.

What makes currencies rise and fall in value