Anatomy of a Currency Fall
The decline of a currency is rarely caused by a single event. It is usually the result of several intertwined macroeconomic pressures:
- Geopolitical & Oil Shocks: Geopolitical conflicts (such as recent escalations in West Asia) often cause crude oil prices to surge. Because major commodities like oil are priced in US dollars, an oil shock heavily drains foreign exchange reserves and inflates trade deficits for energy-importing nations. [1, 2, 3, 4]
- Capital Flight: When global uncertainty rises, foreign investors often withdraw their funds from emerging markets, retreating to the safety of developed-nation assets. This mass exodus of foreign portfolio and direct investment drastically reduces foreign currency inflows.
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