Interest rate and the US Dollar

Money moves to where ever it can get the best return. The interest rate is a provider of this return. To get the interest payment, you must move your money into that country and thus acquire (exchange) the home currency. If the interest rate is high (compared to other interest rates) they money will move in. when it does, the demand for the home currency, relative to the other currency rises - this is the simple case of supply and demand. When the interest rate falls, money may move out to find a "better home" and thus the exchange rate may fall. This is what we are experiencing recently in the US. There are other factors that affect the exchange rate - like trade surpluses and deficits.

Why change the interest rate?
In recent years central banks have used the interest rate to tweak things in economies. when economies are expanding too quickly - this can cause inflation - increasing the interest rate, and thus the cost of borrowing, can moderate this growth. Conversely, when economic activity is slowing, lowering the interest rate can act as a stimulus for the economy so that businesses and individuals can borrow money to expand business or buy a home or car. We have seen the latter recently in the US as the Federal Reserve lowered the borrowing rate by a significant 3/4% in an effort to stimulate the US economy.