Currency fluctuations in the currency market is essentially caused by the appreciation or depreciation of currencies; at every point in time one currency in the market is either gaining in value (appreciating) or losing in value (depreciation).
The global economic scene is very diverse, with different economic activities and data being processed daily. Economies with strong growth and development tend to have appreciating currencies, while economies not perceived to be doing well tend to have depreciating currencies.
So a currency’s appreciating is directly tied to the state of its economy. When the USD (United States Dollar) is appreciating, what happens to the EURUSD?
The best way to visualize this is to use a scale. If the USD is appreciating over the EUR, it means the USD has more weight or demand than the EUR. So the market will go in the direction of the “heavier” currency.
However, some economies may choose to devalue their currency in order to spur economy growth.
An example is the Japanese yen (JPY), which the Bank of Japan regularly devalues through acts of intervention in the currency markets. By keeping the Japanese yen low, the currency is cheaper and attractive to f…