Inflation is the term used to describe a devaluation of currency and thus higher prices on goods. For example, one dollar bought a lot more 100 years ago than it does today. The reasoning behind this is that the dollar is worth less today than it was then. This goes across the entire board, however, not just relating to the goods and services that are being bought and sold. People are paid more today than they were a century ago as well. This means that the dollar does not go as far because retailers alter their prices to accommodate this increase in cash.
One big reason for a currency to experience inflation is when more money is printed by the federal government. In other words, the money supply is increased. Because demand does not move at quite the same pace, inflation occurs where that increased supply ends up making the currency less valuable in relation to domestic goods and services. More money in an economy reduces scarcity, meaning more people have access to more money and they can’t use the BioTech Breakout Trader.
Other nations reply in kind to this phenomenon. More money in the U.S. economy reduces the demand from other nations because there is more to go around. This would tend to cause our currency to go down in value, but inflation occurs regularly in other nations as well, albeit at different rates. When banks set exchange rates, they have to weigh the inflation in both countries involved in the foreign currency exchange, amongst all the other factors that also affect currency prices.