Depreciation refers to a decrease in the value of one currency relative to other currencies in the foreign exchange market. Currency depreciation can result from economic weakness, political instability, interest rate differentials, or changes in trade balances. Depreciation affects international trade competitiveness, inflation rates, and cross-border investment flows.

Currency depreciation has mixed economic effects: it makes exports more competitive while increasing import costs and potentially fueling inflation. Central banks may intervene to prevent excessive depreciation through interest rate adjustments or direct market intervention. Traders profit from depreciation by taking short positions in weakening currencies.

Real-world example: The Turkish Lira depreciates 20% against the USD following central bank rate cuts, making Turkish exports cheaper but increasing inflation from higher import costs.