If savings are greater than investment, what is the likely impact on the currency?

When savings exceed investment, this surplus can lead to an appreciation of the currency in the context of foreign exchange markets and economic fundamentals. However, in the traditional economic framework, an excess of savings over investments signals that domestic consumers and businesses are not utilizing their resources for growth, potentially leading to a decrease in economic activity.

In this situation, the excess savings might prompt a decline in interest rates as financial institutions seek to encourage borrowing and investment. Lower interest rates can decrease the attractiveness of the currency for foreign investors seeking higher returns, leading to a weakening of the currency's value. Thus, if domestic economic conditions are perceived to be weakening due to a lack of investment, this can further contribute to depreciation of the currency.

Consequently, the logic follows that if savings consistently outpace investments, which may indicate broader economic issues, the currency is likely to weaken as investors lose confidence and capital flows shift away from the domestic economy. This aligns with the general economic principle that a lack of effective use of capital (through investment) can create a bearish outlook on the currency.