What does it mean when we say that the dollar floats?

When we describe the dollar as floating, it implies that its value is not fixed or pegged to a specific standard, such as gold, but rather determined by market forces. This means the dollar's value can fluctuate daily based on various economic factors, including supply and demand, inflation rates, interest rates, and the overall health of the U.S. economy. Exchange rates can rise or fall due to investor perceptions, geopolitical events, and changes in economic indicators, leading to dynamic pricing in currency markets.

This floating exchange rate system allows for greater flexibility in responding to economic changes and helps to stabilize the economy by absorbing shocks and adjustments. A floating dollar means that it can appreciate or depreciate, impacting imports, exports, and the overall economy.