According to the economic principles, what typically causes a depreciation of a currency?

Depreciation of a currency occurs when its value decreases relative to other currencies. A primary cause of this depreciation is a trade deficit. When a country imports more goods and services than it exports, it creates a higher demand for foreign currencies to pay for those imports. As a result, there is an increased supply of the domestic currency in the foreign exchange market, leading to its depreciation.

In contrast, increased exports tend to strengthen a currency, as they require foreign buyers to purchase the domestic currency to pay for those exports. Higher interest rates generally attract foreign investment, strengthening the currency rather than depreciating it. Similarly, foreign investment usually increases demand for a country's currency, which also supports its value. Thus, a trade deficit directly contributes to currency depreciation by fostering a scenario where domestic currency is sold off in greater amounts to purchase foreign currency for imports.