1. Balance of payments situation

The balance of payments is a comprehensive reflection of a country's foreign economic activities and has a direct impact on the changes of a country's currency exchange rate. A country's balance of payments directly determines its foreign exchange supply and demand. The income items in the balance of payments constitute the country's foreign exchange supply, such as the export of goods and services and the inflow of capital. The expenditure items of the balance of payments form the country's foreign exchange demand, such as the import of goods and services and the outflow of capital. When a country's balance of payments has a surplus, it means that foreign exchange inflow is greater than foreign exchange outflow, foreign exchange supply is greater than foreign exchange demand, local currency appreciates against foreign currency, and local currency exchange rate rises; On the contrary, when a country's balance of payments is in deficit, it means that foreign exchange inflow is less than foreign exchange outflow, foreign exchange supply is less than foreign exchange demand, local currency depreciates against foreign currency, and local currency exchange rate declines.

2. Inflation rate

The intrinsic value of money is the basis of determining its external value (namely exchange rate), and the change of the intrinsic value of money will inevitably lead to the change of its external value. Intrinsic value is reflected in the purchasing power of money in China, and inflation is the phenomenon of currency depreciation and price rise caused by the circulation of paper money exceeding the amount of money needed for commodity circulation. Inflation in a country means that the purchasing power of its own currency declines at home, that is, its own currency depreciates internally. Other things being equal, the domestic devaluation of its currency will inevitably lead to the external devaluation. When the inflation rate of a country is higher than that of other countries, the relative price of its export commodities rises and the relative price of its import commodities falls, thus weakening the competitiveness of its own commodities in the international market and improving the competitiveness of foreign commodities in its own market, leading to a decrease in exports and an increase in imports, thus changing the balance of payments situation. Generally speaking, the currency exchange rate of countries with relatively high inflation rate tends to decline, while the currency exchange rate of countries with relatively low inflation rate tends to rise.

3. Interest rate level

For investors, the interest rate determines the income level of their investment. The impact of interest rate changes on the exchange rate is mainly achieved through capital flows, especially short-term capital flows. When the interest rates of currencies in different countries are different, investors will sell currencies with low interest rates and buy currencies with high interest rates in pursuit of higher returns. This capital flow will inevitably affect the supply and demand of different currencies, and then affect the exchange rate changes. In addition, interest rate is an official means for a country to regulate its economy. Interest rate rises, monetary policy tightens, unit currency value increases, and local currency exchange rate rises. So generally speaking, when other factors remain unchanged, the interest rate of a currency rises and its exchange rate rises. On the contrary, if the interest rate falls, its exchange rate will also fall.

4. Government intervention

Although countries around the world relaxed their foreign exchange controls after the collapse of the Bretton Woods system, government intervention is still an important factor affecting exchange rate changes. In order to stabilize the local currency exchange rate, avoid the adverse impact of exchange rate changes on the domestic economy, or curb foreign exchange speculation, a country's central bank often intervenes in the exchange rate, mainly by buying and selling foreign exchange, changing foreign exchange supply and demand, or making comments to influence market psychology, so as to change the exchange rate trend to achieve its policy objectives. Government intervention in exchange rate is often carried out under the condition of violent fluctuation of local currency exchange rate, or for the purpose of promoting exports, so its effect on exchange rate changes is generally short-term and cannot fundamentally change the long-term trend of exchange rate.

5. Market expectation

Market expectation is an important factor affecting exchange rate changes in the short term. In the international financial market, there are large-scale hot money. These huge funds are highly sensitive to the political, economic and military factors of all countries in the world and are dominated by expected factors. Once the market changes, it will flow everywhere. If a country's currency exchange rate is expected to fall, these funds will sell the country's currency in the foreign exchange market, which will have a huge impact on the supply and demand relationship in the foreign exchange market, thus leading to the decline of the country's currency exchange rate. With the increasing scale of international capital flows, market expectations have an increasing impact on the exchange rate.

In short, there are many factors that affect the exchange rate changes, including economic factors, political factors and psychological factors, which are interrelated, mutually restrictive and complicated. Therefore, when we analyze the exchange rate changes, we should not only analyze them from a certain angle and a certain factor, but also comprehensively analyze them from different angles.