All of the world's currencies and foreign exchange markets including the dollar, pound and euro are interconnected with each other.

If the value of one currency goes up, then the value of another currency usually goes down.

The primary indicator that affects a currencies value is its Interest Rate.

If the Interest Rate is high, then speculators will move from the currency with a lower interest rate to the currency with the higher interest rate and in so doing - push the value of the currency up. The reverse also applies - if a Central Bank or government reduces the Interest Rate on its currency, then the value of the currency will fall relative to other currencies. Remember, it's always relative to something else. No currency stands alone - like the tides of the ocean waves!

In exceptional circumstances, it is possible to have a strong currency and a low interest rate at the same time, but this is in a minority of situations just as its possible to have high interest rates and a weak currency - take Zimbabwe at the moment  - interest rates are sky high but who would want the currency? In this short introduction to currencies I'm talking about normal circumstances. For example, in times of war or Global uncertainty, people in the past have flocked to the Swiss Franc for protection - nowadays, it is more likely to be the US Dollar or Gold  - but the normal trend is the higher the interest rate, the stronger the currency.

Some of you may ask, 'But surely its an advantage to have a strong currency all of the time?'

The answer to that is No. I myself was a Futures and Options trader for many years and currencies was an area I followed in some depth  - I traded Gold, the Dollar, Sterling and Silver - and it seemed to me - as a sort of 'Rule of Thumb' - that every 7 years or so, currencies have to fluctuate from strong to weak to keep the tides of International finance flowing.

Let me elaborate.

When a currency is strong - as Sterling has been against the Dollar in recent years reaching nearly $2 to the £1 - people with sterling will buy a lot of American goods and services because they seem relatively cheap or 'half price'.

But eventually, this will add up to a lot of American Imports into the UK which if translated into the equivalent of a Profit and Loss account equals a Loss to the UK economy.

All those Brits flying to New York to buy Christmas presents and spend, spend, spend works wonders to boost the American economy but translates into a loss back in the UK.

Dollar holders on the other hand - and for simplicity let's just say 'Americans' - find it difficult to import anything or go anywhere because the dollar is so weak - everything seems twice as expensive. So they don't take that International holiday in Europe or buy the British car they had their eye on because relatively speaking it seems to have doubled in cost.

When you reach this impasse - economies begin to stagnate because Americans aren't buying and other countries aren't exporting. It's time to reverse the value of the currencies to get goods and services moving the other way.

So now if you observe, Sterling is beginning to fall in value against the dollar to get the tide of change moving the other way across the Atlatntic! And a similar movement is happening within the Euro.

That is an overview to the tides of currency valuations and why it's necessary for currencies at times to be strong and at times to be weak!

It's all about keeping the system moving.