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I'm no wizard but we did just go over this in my university econ class (real wizards can feel free to correct me so I don't mess this up on the test!) :)
It involves imports and exports as far as I know. When someone in country A wants to buy a product from country B, they have to pay in country B's currency. Currency, like any other product, experiences effects of supply and demand. If people abroad are buying fewer American products, they need to purchase fewer dollars beforehand. This means that there is less demand for our dollars, and the value of our currency falls.
Also, by raising interest rates, the Federal Reserve makes our bonds more attractive to overseas investors. This makes demand for our currency rise, but also has the obvious negative effects on the domestic economy. It's a trade-off.
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