Take the US dollar for example. I was reading an article which said the dollar reached new highs recently, but there was a negative connotation to the piece. Doesn’t something “rising” generally mean it’s “stronger”? I usually think in terms of assets like stocks
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Economic transactions involve at a minimum, two parties. To make it simple, lets call them buyer and seller.
For example, if someone works as an employee for the company, the person is selling their effort in exchange for money (salary) ie they are buying money and selling effort. The company is doing the reverse, they are selling the money and buying some effort.
When the currency appreciates, you have to consider both sides. If someone uses their money to buy goods from another country, this means the same amount of dollars (stronger) can purchase more goods. This benefits them. However if someone sells goods to another country, their goods (priced in stronger dollar) becomes more expensive and therefore fewer buyers might want to purchase them. This is bad for them.
The price of money (the exchange rate) is determined by the demand and supply of that currency relative to other currencies. A stronger currency benefits importers and hurts exporters. Rapidly changing currency rates, in itself, is not always good because it increases uncertainty in doing business and therefore less business is done because of this uncertainty.
One common way for currencies to appreciate is if banks increase the interest rate for deposits in that currency. In the US, that is typically driven by the Federal Reserve Bank. The downside to increasing interest rates is that it makes borrowers pay more for loans and it benefits savers. But go too far and reduced borrowing means reduced investment and therefore can contribute to lower employment (if a company doesn’t invest to grow, it will likely not hire more people).
Another reason currencies become weaker relative to another is social and political instability. For example would be Argentina today. Because there appears to be a lot of uncertainty, Argentinians don’t want to hold their currency, the peso, and prefer to exchange it for dollars instead. This makes the peso weaker relative to the dollar.
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