Floating Exchange Rate

A floating exchange rate is one set by supply and demand in the market rather than by an official target. No authority commits to defending a particular level, so the rate moves continuously as flows from trade, investment and speculation change hands between banks, and any level it reaches is simply where those flows cleared. Floating is not the same as unattended. Authorities under a floating regime still set interest rates, publish forecasts and comment on the currency, and all of that reaches the exchange rate — what they do not do is undertake to hold it anywhere. The practical consequence for anyone quoting such a pair is a rate available in size around the clock through the trading week, priced off market conditions rather than an administered number, and with no policy level that the rate can be said to belong at.