Prospective Capital Flows and Currency Movements
Prospective Capital Flows and Currency Movements:
U.S. Dollar versus Euro
This case revolves around fictional foreign-exchange strategist named Luke Anthony, as he attempts to predict the likely future path of the dollar/euro rate. In order to come to this hypothesis, the reader is presented a slew of financial information, ranging from detailed capital flows, interest rate differentials, and recent central bank press releases. This data in turn must be must be analyzed and synthesized in order to develop a proper thesis on future exchange rate pricing. To compound matters further, the evidence is no way clear cut, with some factors pointing towards a resumption of the Euro’s upward march, but others seemed to favor the dollar. While a large variety of variables can potentially impact currency movements, the cases focuses primarily on the correlation between currency movements and capital flows. As such, filtering the evidence will require both standard thinking on FX markets and an analysis of past and prospective international capital flows. In terms of structure, we will begin by our review by assessing the types of capital flows, describe the variables/trends affecting each, and conclude with the final prediction (up, down, sideways).
In terms of standard thinking on FX markets, A historical review of the Euro and US dollar relationship reveals 3 primary scenarios, the initial strengthening of the dollar on the onset of the creation of the Euro (99-00), a subsequent multiyear strengthening of the Euro through April 2008 (01-08), save for brief pause in 2005, and a choppy phase from 2008 to the present (Graph Below). Many factors were thought to have weighted the dollar during the second phase, including the interest rate differentials and the U.S current account deficit.
On the issue of capital flows, our primary assertion revolves around the positive correlation between increased capital flows into a country and the associated strengthening
U.S. Dollar versus Euro
This case revolves around fictional foreign-exchange strategist named Luke Anthony, as he attempts to predict the likely future path of the dollar/euro rate. In order to come to this hypothesis, the reader is presented a slew of financial information, ranging from detailed capital flows, interest rate differentials, and recent central bank press releases. This data in turn must be must be analyzed and synthesized in order to develop a proper thesis on future exchange rate pricing. To compound matters further, the evidence is no way clear cut, with some factors pointing towards a resumption of the Euro’s upward march, but others seemed to favor the dollar. While a large variety of variables can potentially impact currency movements, the cases focuses primarily on the correlation between currency movements and capital flows. As such, filtering the evidence will require both standard thinking on FX markets and an analysis of past and prospective international capital flows. In terms of structure, we will begin by our review by assessing the types of capital flows, describe the variables/trends affecting each, and conclude with the final prediction (up, down, sideways).
In terms of standard thinking on FX markets, A historical review of the Euro and US dollar relationship reveals 3 primary scenarios, the initial strengthening of the dollar on the onset of the creation of the Euro (99-00), a subsequent multiyear strengthening of the Euro through April 2008 (01-08), save for brief pause in 2005, and a choppy phase from 2008 to the present (Graph Below). Many factors were thought to have weighted the dollar during the second phase, including the interest rate differentials and the U.S current account deficit.
On the issue of capital flows, our primary assertion revolves around the positive correlation between increased capital flows into a country and the associated strengthening