(1) balance of payments

The balance of payments is the dominant factor that determines the exchange rate trend. The balance of payments is the sum of various payments in a country's foreign economic activities. Generally speaking, the balance of payments deficit indicates a shortage of foreign exchange. Under the floating exchange rate system, market supply and demand determine the change of exchange rate, so the balance of payments deficit will cause the local currency to depreciate, foreign currency to appreciate, and foreign exchange transactions, that is, the foreign exchange rate to rise. On the contrary, the balance of payments surplus leads to the decline of foreign exchange rate. It should be noted that under normal circumstances, changes in the balance of payments determine the long-term trend of the exchange rate.

(2) National income

Generally speaking, the increase of national income leads to the increase of consumption level, and the demand for local currency also increases accordingly. If the money supply remains unchanged, the extra demand for local currency will increase the value of local currency and cause the depreciation of foreign exchange. Of course, whether the exchange rate will fall or rise due to changes in national income depends on the reasons for the changes in national income. If the national income is increased by increasing the supply of goods, the purchasing power of the country's currency will be strengthened and the foreign exchange rate will decline for a long time. If the national income is increased by expanding government expenditure or total demand, the excess demand must be met by expanding imports under the condition of constant supply, which will increase the foreign exchange demand and the foreign exchange rate will rise.

(3) the level of inflation rate

The level of inflation rate is the basis of influencing exchange rate changes. If a country issues too much money and the amount of money in circulation exceeds the actual demand in the process of commodity circulation, it will cause inflation. Inflation reduces the purchasing power of a country's currency at home and devalues it at home. Other things being equal, the domestic devaluation of the currency will inevitably lead to the external devaluation. Because the exchange rate is a comparison of the currencies of two countries, the value represented by the unit currency of a country with too much currency is reduced, so when the currency of that country is converted into foreign currency, it needs to pay more money than the original national currency.

(4) Money supply

Money supply is the primary factor that determines the value and purchasing power of money. If the domestic money supply decreases, the local currency is more valuable because of scarcity. Usually, the reduction of money supply goes hand in hand with the tightening of money supply and credit, which leads to the decline of total demand, output and employment, the decline of commodity prices, the rise of local currency value and the corresponding decline of foreign exchange rate. If the money supply increases, the surplus money will show up in the form of inflation, domestic commodity prices will rise and purchasing power will decline, thus promoting the import of relatively cheap foreign goods in large quantities and the foreign exchange rate will rise.

(5) Financial revenue and expenditure

The financial balance of a country has a great influence on the balance of payments. The expansion of fiscal deficit will increase aggregate demand, which will often lead to balance of payments deficit and inflation. As a result, the purchasing power of local currency declines and the demand for foreign exchange increases, which in turn pushes the exchange rate up. Of course, if the fiscal deficit expands, monetary policy, supplemented by measures to strictly control the amount of money and raise interest rates, will attract foreign capital inflows, make the local currency appreciate and the foreign exchange rate fall.

(6) Interest rate

Interest rate has a great influence on short-term exchange rate under certain conditions. The influence of interest rate on exchange rate is the flow of funds, especially short-term funds, caused by the difference of interest rates in different countries. Under normal circumstances, if the interest rate difference between the two countries is greater than the forward and spot exchange rate difference between the two countries, funds will flow from countries with lower interest rates to countries with higher interest rates, which is conducive to the balance of payments of countries with higher interest rates. It should be noted that although the interest rate level has a certain impact on the exchange rate, its role is limited from the basic factors that determine the fluctuation trend of the exchange rate. It only temporarily affects exchange rate changes under certain conditions.

(7) Exchange rate policies and market intervention.

The exchange rate policies of various countries and their intervention in the market affect the exchange rate changes to some extent. Under the floating exchange rate system, central banks of all countries are trying their best to coordinate their monetary policies and exchange rate policies, trying to support the stability of their own currencies by influencing the supply and demand of the foreign exchange market. The main means by which central banks influence the foreign exchange market are: adjusting their own monetary policies and influencing the exchange rate through interest rate changes; Direct intervention in the foreign exchange market; Implement foreign exchange controls on capital flows.

(8) Speculation and market psychological expectation

Speculators often use the market to attack a certain currency, and the offensive is so strong that it is difficult to prevent central banks from intervening in the foreign exchange market. Excessive speculation intensifies the turmoil in the foreign exchange market, hinders normal foreign exchange transactions and distorts the relationship between foreign exchange supply and demand. ?

In addition, participants and researchers in the foreign exchange market, including economists, financial experts and technical analysts, as well as fund traders, devote themselves to the study of foreign exchange market trends every day. Their judgment on the market, their influence on the psychology of market traders, and traders' own predictions on the market trend are all important factors affecting the short-term fluctuation of exchange rate. When the market expects a currency to fall, traders will sell a lot of the currency, which will lead to a decline in the exchange rate of the currency; On the contrary, when people expect a certain currency to become stronger, they will buy it in large quantities, thus making its exchange rate rise. Because the public expectation is speculative and decentralized, it intensifies the oscillation of short-term exchange rate fluctuations.

(9) Political and unexpected factors

Because capital pursues safety first, political and unexpected factors have a direct and rapid impact on the foreign exchange market, including political stability, policy continuity, government's foreign policy, war, economic sanctions and natural disasters.

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