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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A strong currency can be bad because it costs foreign people/companies more when buying U.S. goods and services which could hurt U.S. exports.
If a first edition Charizard was put in every pack of Pokémon cards, would it be worth anything?
Would you give me $1000 if I offered you 800,000 Nigerian Naira? Probably not. Because you won’t be able to use them to buy things. You have to find someone else to take them and give you back US dollars, and since they’ll have trouble using them too, they’ll probably give you less than what you paid for them for that reason.
Your stock analogy isn’t bad. The ‘downside’ of being a strong currency would be analogous to the maximum ‘buy low, sell high’. If you have a weak currency, investors want to ‘buy’ your country (by building factories and hiring a lot of people to do so). If you have a strong currency, investors want to sell high (close down factories, which means job cuts).
So rates are double edged; strong currencies allow you to consume more but make it harder to invest, and vice versa.
When other countries buy more goods and services(using the US dollar), they need to convert their home currency to the US Dollar.
Like for any other good, a rise in demand with supply remaining same, causes the price to buy US dollar using the home country currency to rise.
It’s different for each currency pair, and so their is the Dollar Index that tries to give an average to show the general trend of if the US dollar price(exchange rate) to buy using other currencies is mostly rising or falling. It is this index that was mostly rising in the recent time period, and described as dollar becoming stronger.
A strong currency is typically a sign of a growing and historically stable economy.
Currency strength is also impacted by the country’s interest rate and inflation. A higher interest rate means the amount of money have increases more quickly, but if inflation is higher than interest rates then your money is still worth less over time (you can’t buy as much with it next year as you can right now) so a stronger currency would generally be found in a low inflation economy.
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