exchange rates

[Jo2004]

Why do exchange rates fluctuate??

[GuavaHalf]

They are a commodity like any other and obey the laws of supply an demand. If lots of people want dollars the price of dollars goes up. At the moment people are not so keen on dollars so they are selling them and buying other currencies such as the Euro. As there is a glut of dollars the price of them is going down (ie you get more dollars per pound)

[Bob Carter]

Guavahaf has half answered the question. More importantly though ... is why does the desirability of one currency against another change? The 'best' currency to be holding is one in which interest rates are expected to rise soon ... but without causing an economic crash. You buy cheap, the 'price' of the currency rises as the interest rate goes up and then you can sell at a profit. That's it at its most simple. Of course banks and financiers take in many other factors when deciding in which currencies to invest. Long term economic stability (usually) but sometimes, like a much-mentioned financier of Greek extraction, you take a short term punt when Britain joins the ERM. He bought on other people's expectation of a stable pound within the ERM and then sold big-time and, with others copying him as the pound slipped in the markets, forced the biggest financial meltdown in Britain since the pound was floated in 1973. And who said finance was boring!!