What are the main factors that influence exchange rates in the foreign exchange market?

Exchange rates in the foreign exchange market are influenced by several key factors. Interest rates play a major role, as higher rates attract foreign capital, increasing demand for the currency. Inflation rates also impact currency value; countries with lower inflation tend to see their currency appreciate. Economic indicators such as GDP growth, unemployment, and trade balances reflect a country's economic health and can affect exchange rates. Political stability is another factor, with stable governments attracting foreign investments. Lastly, market sentiment, driven by speculation and investor confidence, can lead to short-term fluctuations in exchange rates.