Main factors affecting exchange rate
1. The economic growth rate of a country.
This is the most basic factor affecting exchange rate fluctuations. According to the macroscopic classical theory of Keynesian school
According to economic theory, the growth of GNP 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.
2. Balance of payments.
This is the most direct factor affecting the exchange rate. 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.
3. The difference between the price level and the inflation level.
Under the paper money system, the exchange rate is fundamentally determined by the actual value of 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.
4. Differences in interest rate levels.
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 the inflow of foreign funds, at the same time restrain domestic demand, reduce imports and make the local currency appreciate.
Tall man. However, under severe inflation, interest rates are negatively correlated with exchange rates.
5. People's psychological expectations.
This factor is particularly prominent in the current 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 short-term or extremely short-term exchange rate fluctuations.
In addition, the factors that affect exchange rate fluctuations include the government's monetary and exchange rate policies, unexpected events, the influence of international speculation, the publication of economic data and even the remarks of government officials. These factors will also reinforce each other or offset each other.