Evolution of Exchange Rate: Simplified Explanation

Exchange rates change depending on several factors:Exchange Rate Evolution

– Economic situation of the country issuing the currency;

– Prospects of gain in the financial market of the issuing country;

– Speculation pure and simple.


First, the dollar has regained some value against the euro, combined for two reasons:

– Economic prospects are better in the U.S. the gross domestic American product grew in the 4th quarter of 1% higher than expected (4.7 to 5.7%).

– Fears about the future of the Euro zone with countries such as Greece and Spain (and to some extent Ireland and Portugal) experiencing deficits of concern.


Secondly, the financial markets of certain emerging countries such as Brazil and India have attracted significant because the indices of these countries progressing every day. Capital rushed in these countries, causing currency appreciation. Brazil had to impose a tax on capital inflows to discourage some investors eager to gain.


Finally, some investors buy currencies when they are at their lowest for resale when they increase in value.


Know that it is through this mechanism speculation that the billionaire (now philanthropist) George Soros was enriched in 1992 by speculating against the pound sterling.