For a country with a floating exchange rate, what primarily influences the movement in the exchange rate?

In a country with a floating exchange rate, the primary influence on the movement of the exchange rate is the interaction of supply and demand in the foreign exchange market. This means that the value of the currency fluctuates based on how much of that currency is available (supply) versus how much is desired (demand) by buyers and sellers.

When demand for a currency increases, perhaps due to a rise in exports or investment opportunities, the value of the currency tends to appreciate. Conversely, if there is an oversupply or reduced demand, the currency's value may depreciate. Various factors, including economic indicators, political stability, and market speculation, can affect demand and supply dynamics, leading to fluctuations in exchange rates.

In contrast, while government intervention can play a role in stabilizing or influencing exchange rates occasionally, it is not the primary determinant in a floating system as it would be in a fixed exchange rate regime. Fixed interest rates and the trade balance do have impacts on currency value as well, but they are not the main driving factors in a floating system where the market largely determines currency value based on supply and demand.