The most basic factors affecting exchange rate fluctuations are as follows:
First, the balance of payments and foreign exchange reserves.
The so-called balance of payments is the comparison between the total monetary income of a country and the total monetary expenditure paid to other countries. If the total monetary income is greater than the total expenditure, there will be a balance of payments surplus, on the contrary, it is a balance of payments deficit. The balance of payments can directly affect a country's exchange rate. The balance of payments surplus will make the foreign exchange rate of the country's currency rise, and vice versa;
This is the most direct factor affecting the exchange rate. As early as 65438+1960s, Gehlsen, an Englishman, elaborated on the influence of balance of payments on exchange rate, and then mentioned portfolio theory. The so-called balance of payments is simply the import and export of goods and services and the input and output of capital. In the balance of payments, if exports exceed imports and capital inflows, it means that the demand for the country's currency in the international market will increase, and the local currency will rise. On the other hand, if imports exceed exports and capital flows out, the demand for the country's currency in the international market will drop and the local currency will depreciate.
Second, interest rates.
As a basic reflection of a country's borrowing situation, interest rate plays a decisive role in exchange rate fluctuations. The interest rate level has a direct impact on international capital flows. Capital inflows occur in countries with high interest rates and capital outflows occur in countries with low interest rates. Capital flow will change the relationship between supply and demand in the foreign exchange market, thus affecting the fluctuation of foreign exchange rate. Generally speaking, the increase of a country's interest rate will lead to the appreciation of its currency, and vice versa;
All the theories of the monetary school have discussed the role of interest rates in exchange rate fluctuations. However, the most clear explanation is the interest rate evaluation theory, which emerged after the 1970s. This theory well explains the exchange rate changes in the short and medium term. The influence of interest rate on exchange rate is mainly realized through the influence on arbitrage capital flow. Under moderate inflation, higher interest rates will attract foreign capital inflows, restrain domestic demand, reduce imports and make the local currency appreciate. However, under severe inflation, interest rates are negatively correlated with exchange rates.
Third, inflation.
Generally speaking, inflation will lead to the decline of the country's currency exchange rate, and the easing of inflation will lead to the increase of the exchange rate. Inflation affects the currency value and purchasing power of the local currency, which will weaken the competitiveness of export commodities and increase import commodities. It will also have a psychological impact on the foreign exchange market and weaken the credit status of the local currency in the international market. These three aspects will lead to the depreciation of the local currency;
The difference between price level and inflation level, under the paper money system, the exchange rate is fundamentally determined by the actual value represented by money. According to the purchasing power evaluation, the parity of currency purchasing power is the currency exchange rate. If a country's price level is high and inflation rate is high, it means that the purchasing power of local currency declines, which leads to the depreciation of local currency. Instead, it tends to appreciate.
Fourth, the political situation.
Changes in the national and international political situation will have an impact on the foreign exchange market. Political changes generally include political conflicts, military conflicts, elections and regime changes. These political factors sometimes have a great influence on the exchange rate, but the influence time limit is generally short. Although the exchange rate fluctuates ever-changing, it is the same as other commodities. In the final analysis, it is determined by supply and demand. In the international foreign exchange market, when there are more buyers than sellers of a certain currency, the buyers scramble to buy, and the buyer's power is greater than the seller's power; Sellers can live in rare goods, and the price will inevitably rise. On the other hand, when sellers see poor sales and compete to sell a certain currency, the seller's power in the market has the upper hand and the exchange rate will inevitably fall.
Fifth, the economic growth rate of a country.
This is the most basic factor affecting exchange rate fluctuations. According to the macroeconomic theory of Keynesian school, the growth of gross national product will lead to the growth of national income and expenditure. The increase of income will lead to the expansion of the demand for imported products, and then expand the demand for foreign exchange and promote the depreciation of the local currency. The increase of expenditure means the increase of social investment and consumption, which is conducive to promoting the development of production, improving the international competitiveness of products, stimulating exports and increasing foreign exchange supply. So in the long run, economic growth will cause the appreciation of the local currency. From this perspective, the impact of economic growth on the exchange rate is complex. However, if we consider the role of currency preservation, exchange psychology has another explanation. That is, the value of money depends on the subjective evaluation of money by both the foreign exchange supply and demand sides, and the contrast of this subjective evaluation is the exchange rate. When a country's economy is developing well, its subjective evaluation is relatively high and its currency is firm.
Sixth, the market outlook.
The so-called market view refers to the expectation and cognition of foreign exchange traders on the short-term fluctuation direction of exchange rate in the future, and the short-term fluctuation of exchange rate often reflects the market view. There are "positive" and "negative" market views. When the market view of a certain currency is regarded as positive, it will be relatively strong compared with other currencies; On the contrary, when the market view of a certain currency is interpreted as negative, it will be relatively weaker than other currencies. Foreign exchange traders will respond to market news most quickly under the known economic situation. Usually, they will consider market news and major measures that the government may announce in advance, and take actions to buy or sell before the information is officially announced. After the news is officially announced, market views will affect the exchange rate trend. For example, before the government released the GDP (gross domestic product) data, the market held a fairly optimistic view, and the country's currency exchange rate might rise. In case the published result is lower than the market expectation, even if this data is still good news for the country's economy, the exchange rate may still fall due to disappointing selling pressure. After the relevant news is exposed, it will affect the existing market view.
Seventh, people's psychological expectations.
This factor is particularly prominent in the international financial market. According to exchange psychology, foreign exchange rate is the concentrated expression of subjective psychological evaluation of money by both foreign exchange supply and demand sides. If the evaluation is high and confidence is strong, the currency will appreciate. This theory plays a vital role in explaining countless short-term or extremely short-term exchange rate fluctuations. In addition, the factors affecting exchange rate fluctuations include the government's monetary and exchange rate policies, the impact of emergencies, the impact of international speculation, the publication of economic data and even the impact of opening and closing.
Eighth, technical analysis.
Many market participants believe that the direction of past market price movements can be used to predict future trends, so they use the information of past market price movements to trade without considering economic fundamentals or news. This method is called technical analysis. Assuming that market participants will adopt the same strategy today as before, technical analysis can describe future market trends for investors. There are many applied theories about technical analysis, but its spirit can be summarized as the following motto: Make friends with market trends.