What are the factors behind the value of a currency. I understand that the value of the U.S. dollar is always changing in value but what determines when this is more valued or less valued than other currencies?
What makes the British Pound the strongest or one of the strongest currencies in the world?|||A number of factors. When currencies are not 'fixed', they fluctuate based on international supply and demand: the relative strengths of the various national economies (GDP, investment, business activity). Currency speculation affects the strength of a currency: investors buy up that currency - betting that it will be stronger in the future, based on the current and projected strengths of national economies. In this case, a currency becomes another commodity (like a car) but currency speculation doesn't create wealth, it only transfers it.
When currencies are 'fixed', their strength is tied to a particular resource or product, like gold. So, when that product is worth more, the currency is stronger. This tends to over-inflate the value of a currency when most or many other currencies are not fixed.
The factors behind the value of a currency put simply, are the GDP of that currency's country, its employment level, and its level of business activity/investment when it is free, a resource when it is fixed.
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