What are the factors that affect currency exchange rates?

There are several factors that affect currency exchange rates, including:

1. Interest rates: Higher interest rates in a country tend to attract foreign investors, increasing the demand for its currency and strengthening its exchange rate.

2. Inflation: Countries with lower inflation rates generally have stronger currencies, as their purchasing power is higher compared to countries with higher inflation rates.

3. Political stability: Political stability and a favorable economic environment can attract foreign investment, leading to an increase in demand for a country's currency and strengthening its exchange rate.

4. Economic indicators: Factors such as GDP growth, employment rates, trade balance, and fiscal policies can influence currency exchange rates. Positive economic indicators often lead to a stronger currency.

5. Speculation: Currency speculation by traders and investors can have a significant impact on exchange rates. If there is a belief that a currency will appreciate in value, demand for it will increase, leading to a stronger exchange rate.

6. Government intervention: Central banks and governments can intervene in currency markets to influence exchange rates. They may buy or sell their own currency to stabilize or manipulate its value.

7. Market sentiment: Market sentiment and investor confidence can affect currency exchange rates. Positive sentiment can lead to increased demand for a currency, strengthening its exchange rate.

It is important to note that these factors are interrelated and can influence each other, leading to complex dynamics in currency exchange rates.