How does currency fluctuation work?
In: Economics
Think of currency as you would any other good. Like any good a country’s currency is subject to supply and demand and priced relative to the price of other currencies. The supply is determined by a central bank with demand determined often times by investors.
The fluctuation in currency is usually due to confidence in the currency to hold or gain value or due to the need to trade in the currency of the selling party. During economic downturns money generally flows to large economies, namely the US and this is where the dollar gains value as has been seen over the last few weeks.
Central banks and governments do have some instruments to attempt to manage the demand and supply but these can be costly and have other impacts so aren’t used significantly unless there is a currency crisis which are much larger fluctuations again generally down to the above points.
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