Exchange rates are set by supply and demand in the forex market. Key factors: Interest rates (higher rates attract investors), inflation (lower is better), economic growth, political stability, and trade balances.
- Supply and demand: Most traded currency pairs
- Interest rates: Higher rates strengthen currency
- Inflation: Lower inflation = stronger currency
- Economic indicators: GDP, employment, trade balance
- Political stability: Uncertainty weakens currency
- Central bank actions: Rate changes, intervention