MiniMe7

real rates.
the only reason nominal rates increase is to combat inflation. so if increasing nominal rates suggest inflationary pressures, there’s no reason an investor would increase demand for that currency.
this is reflected in interest rate parity - countries with higher nominal rates should see their currencies depreciate. for example, if the spot is $2/pound and the us interest rate is 5% and the UK rate is 7%,
IRP says: fwd rate in one year = 2(1.05/1.07) = $1.96, meaning it takes less $ to buy pounds and the $ has appreciated and the pound has depreciated - due to higher nominal interest rates.