Why do currencies change in value?
The value of currency rises and falls for many of the same reasons that individual stocks gain and lose value. Thus, it may be helpful to think of currency as the stock of the country that issued it. The direction of that stock is, to a large degree, dependent on the conditions and prospects of that country. For instance, if a nation is politically and economically stable, with a healthy balance sheet and solid economic growth prospects, this currency will often reflect that by retaining value or appreciating against other currencies. Another significant influence is the prevailing interest rates of the country issuing that currency. If global investors can earn a relatively high rate of interest by buying a country’s bonds, demand for those bonds will increase, and that country’s currency will strengthen as investors in other parts of the world exchange their native currency for the currency in which the bond is denominated.
