What is responsible for the weakening of currency?

The weakening of currency is primarily influenced by inflation rates. When a country's inflation rate rises significantly, the purchasing power of its currency decreases. This means that consumers in that country can buy fewer goods and services with the same amount of money compared to a period of lower inflation. Moreover, higher inflation can lead to higher interest rates as central banks attempt to control inflation, which, in turn, can affect the attractiveness of that currency to investors, potentially leading to a decrease in demand for it relative to other currencies.

While the financial market plays a role in currency valuation, it is not the direct cause of currency weakening. Instead, factors like inflation, political stability, and overall economic conditions significantly influence how currencies are traded in these markets. Thus, inflation rates are a crucial determinant in understanding currency depreciation and are fundamental to economic stability.