Exchange rates are prices. Like other prices, they move when supply, demand and expectations change. A currency can strengthen when more people want to buy it, and weaken when demand falls.
Interest rates
Interest rates are one of the most important exchange rate drivers. If investors expect higher returns in one country, demand for that currency may increase.
Inflation
Inflation affects purchasing power. A currency with lower inflation can become more attractive over time because it may preserve value better than a currency with high inflation.
Central banks
Central banks influence exchange rates through policy rates, bond buying, forward guidance and direct communication. Markets often move before official decisions because traders react to expectations.
Economic growth
Strong economic growth can attract investment and support a currency. Weak growth can have the opposite effect, especially if investors expect lower future interest rates.
Risk sentiment
In uncertain markets, investors may move toward currencies they view as liquid or defensive. During optimistic periods, money may flow toward higher-yielding or growth-sensitive currencies.
Trade and capital flows
Exports, imports, investments and cross-border business payments all create currency demand. These flows matter especially for smaller and open economies.
How to use this knowledge
For everyday conversion, you do not need to forecast the market. Use a currency converter for a live estimate, then compare the rate with any final provider fee.