Gold: for a long time, most currencies were pegged to gold. The system crashed in 1971 and most currencies have now floating rates. Economical factors: such as growth, employment, productivity (how efficient people work in a country), inflation and trade deficit impact the value of a currency to another. If economic indicators are getting worse, in the long term, the currency will lose value. Investments: economic factors do not explain 100 per cent of exchange rates. Currencies are largely used for investing, not just to buy and sell goods and services. The investment movements in one currency or another deeply impact exchange rates. They also link the foreign exchange market to the other financial markets such as the stock markets. Speculation: people can make money with the exchange rates movements. Investors also trade currencies for their future value.
