' Oil Prices, Exchange Rates and Interest Rates' 218 The euro as a reserve currency: a challenge to the pre-eminence of the US Dollar?'įederal Reserve Bank of Dallas. ' The US dollar's hegemony as an international currency: a double-matrix analysis'īank for International Settlements. They can do this by buying or selling their own currency or foreign currencies.Īnnina Kaltenbrunner and Photis Lysandrou. Intervention by Central Banks: Central banks can intervene in the foreign exchange market to try to stabilize or devalue their currency.Speculation: If traders believe a currency will move in a certain direction, they will trade accordingly and may cause the currency to go up or go down.This can cause the currency to depreciate. Public Debt: Countries with high levels of public debt appear to be less attractive to foreign investors due to the high risk of default as well as the possibility of inflation.If a country exports more than its imports (trade surplus), its currency is expected to appreciate due to a higher demand from foreign entities purchasing its goods and services. Balance of Trade: This refers to the difference between a country's exports and imports.Political Stability and Performance: Countries that are stable, have transparent legal systems, and are secure and politically peaceful are considered safer investments, leading to currency appreciation.On the contrary, if the economy is in a recession, the currency is likely to depreciate. Economic Performance: If a country's economy is doing well, with strong growth and high productivity, its currency is likely to appreciate.Lower inflation rate implies an increase in the purchasing power of the currency, which investors would find attractive.

Inflation Rates: A country with lower inflation rates compared to others will see its currency appreciate.As demand for the currency increases, so does its value. Interest Rates: If a country's central bank raises interest rates, that country's currency becomes more attractive because investors can earn more on their investments within that country.

Chinese yen to usd