Appreciation

In foreign exchange, a currency appreciates when it can buy more of another currency than before. For example, if the exchange rate between the euro and the US dollar moves from 1.10 dollars per euro to 1.21 dollars per euro, the euro has appreciated by 10% against the dollar.

A currency usually appreciates under a floating exchange rate when demand for it rises. This can happen because of higher interest rates attracting foreign investment, strong economic growth, a trade surplus or increased confidence in the country.

Currency appreciation has mixed effects. It makes imports cheaper, which can reduce inflation and benefit consumers and businesses that buy foreign goods. It also makes foreign holidays cheaper. However, it makes a country's exports more expensive for foreign buyers, which can hurt exporters and industries that compete with imports.

The term also applies to other assets. A house, share or piece of art that rises in value has appreciated. The opposite of appreciation is depreciation, a fall in value.