Forecast the July 31 2018 spot exchange rate for the euro P

Forecast the July 31 , 2018 spot exchange rate for the euro. Provide defense for your forecast.

Solution

The current Euro to dollar exchnage rate is 1 EUR = 1.16268 USD

Going forward the Dollar is expected to be strong as the US federal reserve has been constantly hiking interest rates in the US whereas the European cental bank (ECB) is resorting to quantitative easing so as to improve the liquidity. As a result, becuase of the quantitative easing the euro is expected to further weaken by July 31st 2018.

I would expected the Euro to weaken by 1% meaning the dollar will appreciate by 1% before the end of this month.

Hence my calculation would be = 1.16268*(1-0.01) = 1.15105

So, my forecast for 31st July 2018 spot exchange rate is 1 EUR = 1.15105 USD