EnVestorOne, LLC - Currency Trading, InvestNow.

There are two reasons the relative value of a currency fluctuates. The first is because of a ‘real’ market: as outside investors or visitors wish to buy things within a country, they are forced to convert their domestic currency into the currency of the country they are buying within. Similarly, as money leaves the country, people must sell their currency for the foreign currency they will need to spend or invest abroad.

The second force for currency fluctuation is speculation. As investors feel a given currency will act strongly or weakly, they will buy or sell accordingly. This speculation can have drastic consequences on a national currency and consequently on a country’s economy. During the East Asia Crisis in 1997, for example, as nations in Asia began facing economic downturns, speculators used currency trading to realize enormous profits and in many analysts’ view helped to exacerbate the problem.