With a free-floating exchange rate, the buyer wants to use the weaker currency and the seller wants to accept the stronger one. The seller can set prices in each according to his preference, and the buyer can decide which to pay vs. which to save according to hers. The market will discover an exchange rate between the two currencies accordingly, but no economic law dictates that one will drive out the other.
Gresham’s law applies when the seller is bound to a certain rate of exchange between the two currencies. The buyer will therefore pay in the currency she has the least desire to hold for the long term. As a result of everyone doing this, over time all trading will be done in the less-desirable currency.