What factors can lead to currency depreciation?

Currency depreciation can occur due to high inflation, political instability, or poor economic performance. High inflation erodes the purchasing power of a currency, making it less attractive to investors and leading to decreased demand. Political instability can create uncertainty and risk, driving investors away and resulting in reduced confidence in the currency. Poor economic performance, characterized by low growth rates, high unemployment, or trade imbalances, can further weaken a currency as it reflects an economy that is not performing well in comparison to others.

In contrast, factors like low inflation and political stability generally contribute to a stronger currency, while increased foreign investment and high economic growth usually bolster currency value as they signify confidence in the economy. A stable government and low unemployment are also indicators of a healthy economy, which tends to support a strong currency.