Do Rising U.S. Interest Rates Imply a Stronger Dollar?
Recent U.S. monetary actions have been viewed, in part, as a reaction to the rapid depreciation of the U.S. dollar on foreign exchange markets over much of last year. This article examines the relationship between changes in the U.S.-foreign interest rate differential and movements in the foreign exchange value of the dollar. The analysis is consistent with recent events and emphasizes the role of monetary disturbances in determining movements in both exchange rates and interest rates.