How are foreign exchange rates determined? Who is the governing body that determines the value of currencies?

Question

Every day the dollar is weaker, and the Euro and Pound stronger--what factors are used in determining the values of currencies, and how accurate are they?

Answer 1

There are several economic factors which can affect exchange rates:

Relative Growth
Inflation Differential
Trade/Current Account
Interest Rate Differentials Short (Long)
Equity Flows
Other Factors (Productivity Differences, Liquidity, Risk Appetite, Commodity Prices, Oil Prices, Politics, Governance, Foreign Direct Investment, Budget Deficit, Central Bank Intervention)

Answer 2

The value of a countries currency is determined by several factor although only two are worth mentioning it. One, simply put, is supply and demand. The highest traded currencies are the Dollar, Euro, and Yen. They have a high exchange rate because they control their market zones and all international banking transactions are done in that currency. The second is an indirect relationship to investments and a 'risk country factor.' The more investments and the the higher letter grade (A being the highest) receive by a country also help determine the value of it's currency. GDP although is a factor, has little to do with the actual value of currency exchange. The Yen is not valued low at all, in comparison the dollar is cheap compared to the yen. The reason that $1 is valued at 118.31 is because of inflation in Japan.

Answer 3

this is mostly caused by currency traders speculating / buying / selling LARGE volumes of currencies. The country involved can also intervene and buy back or sell more of their currencies to effect it's value.