Floating rates are determined by the market forces of supply and demand. How much demand there is in relation to supply of a currency will determine that currency’s value in relation to another currency. For example, if the demand for U.S. dollars by Europeans increases, the supply-demand relationship will cause an increase in price of the U.S. dollar in relation to the euro. There are countless geopolitical and economic announcements that affect the exchange rates between two countries, but a few of the most popular include: interest rate decisions, unemployment rates, inflation reports, gross domestic productnumbers and manufacturing information.
Some countries may decide to use a pegged exchange rate that is set and maintained artificially by the government. This rate will not fluctuate intraday and may be reset on particular dates known as revaluation dates. Government of emerging market countries often do this to create stability in the value of their currencies. In order to keep the pegged (http://www.investopedia.com/terms/f/foreign-exchange.asp)oreign exchange rate stable, the government of the country must hold large reserves of the currency to which its currency is pegged in order to control changes in supply and demand.
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