What Affects Currency Exchange Rates?

FXClub.com Tip: Currency exchange rates fluctuate for many reasons. If a country experiences an increase in either speculative or transaction demand for its currency, the relative exchange rates will go up.

Good news such as the launch of a high profile space mission or new trade agreement will increase demand for a currency and positively impact its trading rate. On the other hand, negative news such as a terrorist attack or natural disaster can cause a currency to devalue.

Transaction demand is impacted also by the country GDP, key businesses and deals, and unemployment rates. Central banks usually accomodate speculative demand by adjusting interest rates.