Currency movements are driven by interest rate differentials, trade flows, and risk sentiment. Key framework: (1) Interest rate differentials are the primary driver — higher rates attract capital inflows, strengthening the currency. Monitor central bank policy divergence (e.g., Fed vs. ECB). (2) Real interest rates (nominal minus inflation) matter more than nominal rates — a high nominal rate with even higher inflation weakens a currency. (3) Trade balance: persistent deficits weaken a currency; surpluses strengthen it. Watch for oil price impacts on commodity-exporting countries (CAD, NOK, AUD). (4) Risk sentiment: USD, JPY, and CHF strengthen during 'risk-off' episodes (geopolitical crises, market crashes). AUD, NZD, and EM currencies weaken. (5) DXY (Dollar Index) is the benchmark — it measures USD against EUR(57.6%), JPY(13.6%), GBP(11.9%), CAD(9.1%), SEK(4.2%), CHF(3.6%). (6) Watch for central bank intervention signals, especially from Japan (MOF) and China (PBOC fixing).