Appreciation of Currency  

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