An appreciation of a currency means that it becomes worth more relative to other currencies. It means there has been a rise in the exchange rate.
For example in recent years there has been an appreciation in the pound compared to the dollar
in 2006 £1 = $1.8
In 2007 £1 = $2
The effect of an appreciation
- US imports are cheaper for UK consumers
- UK tourists are able to buy more goods for the same amount of £.
- UK exports appear more expensive to US consumers.
- Is likely to increase Aggregate Demand in US but may cause inflation.
The opposite of an appreciation is a deprecation