Question

Suppose that, given the current uncertainty in the US market, an appreciation of the euro against the dollar is expected in the next year:
Select one:

this would lead to an appreciation of the dollar today

this would lead to an appreciation of the euro today

this would not affect today's exchange rate

Answer 1

Uncertainity in US market always leads to volatile foreign exchange market.

If an appreciation of euro is expected next year, this would lead to appreciation of euro today.

Why?

The change maybe temporary in the ever changing currency market but since the news is predicted and information is released out by authentic sources, there is a wave sensitivity to the news that drives the speculation market and the spot rate market. And if there is expected appreciation of euro currency against dollars, investors will start to shift investments to european market and hence euro will tend to appreciate today.