The Foreign Exchange (Forex) market is the largest financial market in the world, trading trillions of dollars daily. But what actually determines if the Dollar is "up" or the Euro is "down"?
Supply and Demand
At its core, currency is a commodity. If international investors want to buy American stocks, they need US Dollars to do it. This demand drives the price of the USD up. If a country is unstable, investors sell that currency, driving the price down.
The Role of Central Banks
Institutions like the Federal Reserve or the European Central Bank manipulate rates through interest rates. Higher interest rates offer better returns to lenders, attracting foreign capital and causing the exchange rate to rise.
Floating vs. Fixed Rates
Most major currencies (USD, EUR, JPY) are "floating," meaning their value fluctuates every second based on the market. Some smaller economies "peg" (fix) their currency to the dollar to ensure stability, though this requires massive cash reserves to maintain.
See the Market
Check live exchange rates to see how the market is moving today.
Conclusion
While you can't control the global economy, understanding why rates move can help you make smarter decisions about when to transfer money or plan a trip.