Short-term (1-month) government rate interest, currency, government, expect, question

bchadwick

Curriculum volume 3, page 118, question 18.

Why would we expect to see a strengthing currency in UK since its Short-term (1-month) government rate is higher?

It looks to me that higher interest rate will make the currency depreciated, according to Interest Rate Parity.

wake2000

high interest rate will attract capital that seeks here ROI, increasing demand for currency, which increases Fx. I think you're confused with inflation.

Unforseen

This is from L2 (maybe L1 even). PPP only works in the long term.

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