1. 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 currency depends on the subjective evaluation made by both the supply and demand sides of foreign exchange, 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.
2. Balance of payments. This is the most direct factor affecting the exchange rate. As early as 65438+1960s, Gehlsen, an Englishman, expounded the influence of balance of payments on exchange rate, and later, portfolio theory was also mentioned. 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 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.
4. Differences in interest rate levels. All the theories of monetary school discuss the role of interest rate in exchange rate fluctuation. 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.
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.