Currency strength is the relative purchasing power of a national currency when traded for products or against other currencies. It is measured in terms of the quantity of goods and services purchased and the sum of foreign currency received in exchange for one unit of the national currency.

Normally the increasing economic value of a currency will enable its spenders to purchase larger amounts of products while its earners will enjoy further financial empowerment with more valuable income.

A currency’s strength is determined by the interaction of a variety of local and international factors such as the demand and supply in the foreign exchange markets, the interest rates of the central bank, the inflation and growth in the domestic economy and the country’s balance of trade. Taking all factors into consideration the currency strength can be evaluated in three dimensions:

• Value: the relative purchasing power for goods and services in comparison to foreign currencies
• Utility: the relevance as a financial valuation and exchange device in foreign economies
• Reserve: the acceptability in international trade, driving foreign central banks to hold reserves

As the local production activities add further value to the country’s economy, higher purchasing power encourages spending. The surge in the supply and demand stimulates import and export, flourishing the international trade volumes.

The national currency gains utility in the trade-partner countries which in turn drive their central banks to create reserves for it. Such acceptability enables commerce via a direct exchange of currencies without the mediation of a stronger currency like the U.S. Dollar.

It also provides room for maneuver in case a trading partner’s currency value fluctuates due to external circumstances. As a result, the national currency strengthens in the money markets and gains value in the Forex pairs.

The U.S. Dollar is currently considered as the strongest currency in the world. The U.S. economy has the largest consumer market, and the USD serves as the primary trade and reserve currency all around the globe.