Exchange rates, as well as the prices of consumer goods, are driven by market forces called supply and demand. Exchange rates are influenced by internal and external factors. In general, when there's demand for a currency, its value rises against other currencies. Conversely, when demand for it declines, it costs less against other currencies.
One of the consequences of having a strong currency is that the prices of foreign goods and services will be cheaper for the residents of the country. However, this is not good for the exporters of said country, since the goods intended for export are more expensive to their foreign partners. The central bank of the country seeks to either keep its currency strong (if the country is import-oriented) or to keep it weak (if the country is export-oriented, e.g. Japan) or to try to maintain some balance between the two extremes.
If the prospects for economic progress of the country are better (even if that's just a market rumor), investors and speculators will pour their capital into the economy of said country, which will increase the value of the currency relative to other currencies. The same things happens when news breaks that the country's central bank raised or will raise the interest rate (i.e. it will increase the return on the investment of the folks who keep their money in that particular currency).