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 an appreciation in the Dollar compared to the Euro.

  • In late 2010 €1 = $1.20
  • By mid 2011 €1 = $1.45
  • Therefore in this period, the Euro appreciated in value against the dollar.
  • This compares to 2014 – where the Euro fell in value against the dollar.

The effect of an appreciation in the dollar

  • Imports into the US are cheaper for US consumers
  • US exports are less competitive when selling to the Eurozone
  • An appreciation will tend to reduce inflation – because imports are cheaper and there will be a reduction in aggregate demand (AD)
  • It is likely to worsen the current account on balance of payments



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