Currency Fluctuation

Currency Fluctuation

A change in an exchange rate. If the British pound is worth $2 on Monday, and $1.80 on Tuesday, a (somewhat dramatic) currency fluctuation has occurred. Currency fluctuations happen constantly and occur for all floating currencies.

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Currency fluctuation. A currency has value, or worth, in relation to other currencies, and those values change constantly.

For example, if demand for a particular currency is high because investors want to invest in that country's stock market or buy exports, the price of its currency will increase. Just the opposite will happen if that country suffers an economic slowdown, or investors lose confidence in its markets.

While some currencies fluctuate freely against each other, such as the Japanese yen and the US dollar, others are pegged, or linked. They may be pegged to the value of another currency, such as the US dollar or the euro, or to a basket, or weighted average, of currencies.