It hasn't been updated for such a long time, but you could see Forex analysis in our App on your own mobile.
Anyway, today's title is "Theory of Interest Parity". It theoretically defines the future Forex level by interest rates in two currencies of which are consisted in the Forex. When you have USD 1 million and invest it in interest rates, you can just invest in USD or in other currencies by exchanging. If the exchange rate unchanged, you would like to choose the currency whose interest rate is the highest. Obviously, it forms arbitrage and the fair return should be same in whichever currency you invest. In this sense, the market expects the future level of Forex that a currency of higher interest rate will be weaker than another of lower interest rate.
Of course, the future market does not always respond as theoretically expected. However, this theory is theoretically missing an important factor. Gap in quantity of issued currency will certainly affect to the future exchange rate. When the (expected) productivity is not growing and the central bank issues more notes in the currency, it implies the value of each unit of currency should be deducted.
Currently, EUR interest rate has been in negative territory. In the theory, the value of EUR is going up. But quantitative easing and weak productivity in Eurozone suppose that EUR will not be stronger as the theory expects. In fact, USD is still strong despite their relatively higher interest rate.
