An exchange rate is simply the price of one currency expressed in another, and it changes continuously as supply and demand shift in the global foreign exchange market.
Most major currencies like the US dollar, euro, and British pound "float" freely, meaning their value is set by market trading rather than a fixed government peg. Central banks such as the Federal Reserve and the European Central Bank (ECB) influence rates indirectly through interest-rate policy, not by dictating a daily price.
Several forces move a rate up or down:
- Interest rates set by central banks like the Federal Reserve
- Inflation trends, which the U.S. Bureau of Labor Statistics (BLS) tracks via the CPI
- Trade balances, government debt, and political stability
- Market speculation and investor risk appetite
Because these factors shift daily, the rate you see today is a snapshot, not a fixed value.