Money makes the world spinning, and many things can have an impact on the value of the money. You cannot control one of these factors that change the value of money, but you definitely need to understand what they can make tactical decisions about when to buy or sell certain currencies.
Currency, just like other items purchased or sold, can be influenced by the basics of economics and business cycles. The legal supply and requests are equally apply when talking about currency values as they are when talking about any commodity value.
When a supply of certain currencies is high, the price for the currency goes down because the currency holder tries to find a way to get rid of it. For example, if everyone decides that they don’t want to hold the US dollar again and try to sell it, to do it they may have to reduce the price to find the buyer. In this case, there are more inventory rather than requests.
You can compare this with real estate sales in your environment. When there are many houses on the market, they can sit not sold for months. If someone has to move because of a job change or another reason, that person is likely to give the price of his house to sell it faster.
Conversely, when the supply of currencies is low and there are more people who want to buy it than there is a currency available, the price of the currency rises according to the buyer for the currency. In this case, there are more requests than supplies. Using the same comparison, you can connect this with home sales in your neighborhood. When there are several houses available, the buyer will offer full demand prices and sometimes bid prices are even higher to ensure home.
You might be wondering how the market suddenly can be flooded with currencies to increase supply and finally push the currency prices down. Well, it’s one role of the government and the central bank takes when they want to affect the value of the currency.
The government can also decide they want their currency value to increase, and they have purchasing power to buy currencies and make their currency availability rare. This will make the price of the currency rise.
Government manipulation is not the only thing that can have an impact on the economic value of the economy. Business actions and consumers as a whole can encourage the value of the currency up and down.
The key is to know which type of market faced by every country and how the market has an impact on the value of the currency. Remember that every currency trade involves at least two countries: the country of the currency you sell and the country of the currency you buy.