The British pound sterling (GBP) is the fourth most widely traded currency in the world, behind the U.S. dollar (USD), the euro (EUR), and the Japanese yen (JPY).1The GBP also ranks fourth in globally held reserves.2GBP traders speculate on strength and weakness throughcurrency pairstha...
This expectation is reflected in forecasts for a lower Pound relative to the Euro: the Pound to Euro exchange rate is forecast by Oxford Economics to be at 1.16 from the end of the third quarter 2022 right through to the end of the first quarter of 2023. But a broader retreat by the D...
We find statistically significant evidence that deviations from relative PPP are related to the forward prediction error for the British pound and the euro. Furthermore, when examining the British pound exchange rates with the currencies of developed countries, we find that the coefficients on the ...
EuroForward prediction errorDeviations from PPPBid-ask spreadsForward asymmetriesOne puzzle in international finance is the finding that the forward foreign exchange rate is a poor predictor of the future spot foreign exchange rate. It has been postulated that this finding could be explained by the ...