Export is the process of selling domestic goods or services abroad and earning foreign exchange; Import is the purchase of foreign goods or services with foreign exchange. If a country's exports of goods and services exceed its imports and there is a trade surplus, the country will earn more foreign exchange and spend less foreign exchange, that is, there is more foreign exchange supply and less demand. At this time, the price of foreign exchange-exchange rate will naturally fall, and the country's currency will appreciate accordingly.
Second, the difference between capital outflow and inflow.
The reason is similar to the balance of imports and exports. When a country's capital inflow exceeds its capital outflow, the country will have a capital account surplus, that is, there will be more foreign exchange supply and less demand, and the foreign exchange rate will naturally fall.
Third, the difference in interest rates.
If the interest rate of one country is higher than that of other countries, a large amount of foreign currency will flood in and be converted into the currency of this country in exchange for higher interest rates. In this way, it will promote the appreciation of the country's currency
Fourth, the level of inflation rate.
If a country's inflation rate is high, it means that the country's currency purchasing power is declining. Compared with countries with low inflation rate, their currencies naturally face depreciation pressure.
Fifth, people's psychological expectations.
People's psychological expectation is also an important factor affecting short-term exchange rate fluctuations. If people think that a country's economic development is worrying, or its political situation is unstable, and predict that its currency will depreciate soon, they will sell its currency in succession. As a result, the country's currency became worse, depreciated sharply, and even had a currency crisis.
Sixth, government intervention in exchange rate.
During the period of 1985, the United States was suffering from a high financial and trade deficit, and the appreciation of the US dollar aggravated its trade deficit, so the United States reached a famous "Plaza Agreement" with western powers, and governments of various countries jointly invested 20 billion US dollars in the foreign exchange market to buy Japanese yen. This led to a sharp depreciation of the US dollar and a sharp appreciation of the Japanese yen.