Open a currency converter and you get a single number: this much of one currency equals that much of another. What you don't get is any sense of why that number is what it is, or why it was different last week. That's the gap this guide is for.
Exchange rates are, at heart, a price — the price of one currency in terms of another, set by the same forces that set any price: how much of it people want to hold, and how much is available. What makes currencies unusual is the sheer number of things that shift that demand from one day to the next.
Interest rates set the baseline
When a country's central bank raises interest rates, it makes holding that currency more attractive, because money parked in that currency now earns more. Investors move capital toward higher-yielding currencies, which increases demand and tends to push the exchange rate up. This is the single biggest driver of medium-term currency movements, and it's why currency traders watch central bank meetings so closely.
Inflation erodes value from the inside
A currency that's losing purchasing power at home tends to lose value abroad too, though not always right away. If prices in one country are rising faster than in another, that country's goods become relatively more expensive, which can weaken demand for its currency over time. Persistently high inflation is one of the more reliable long-run predictors of currency weakness.
Trade balances tip the scales
A country that exports far more than it imports tends to see steady foreign demand for its currency, since buyers need it to pay for those exports. The reverse is also true — a country that imports heavily has to sell its own currency to buy foreign goods, adding steady downward pressure. Trade balances move slowly, but they matter over months and years rather than days.
Sentiment moves the short term
Day to day, exchange rates often move on things that have nothing to do with fundamentals: a surprising economic report, a political headline, or simply traders repositioning ahead of a scheduled announcement. This is why a rate can swing meaningfully in an afternoon even though nothing about the underlying economy has changed. If you're converting a large amount and the timing is flexible, it's worth knowing that short-term noise is normal and not necessarily a signal of a new trend.
How to read the rate grid above
The live grid on our homepage shows how much of each currency you'd get for one unit of your chosen base currency, pulled from European Central Bank reference data. A rate moving from, say, 1.08 to 1.06 over a week reflects some mix of the forces above — usually interest rate expectations shifting, since those tend to dominate over short windows.
Use the converter for the live number, and come back to guides like this one when you want the context behind it.