Fixed Observation: Exchange Rate and Interest Rate Differential
The relationship between exchange rates and interest rate differentials is not universal. It breaks when a linkage forms, and a new linkage is formed. Right now, it seems to be seeking a new linkage.
Once a new linkage is found, it will be switched to.
What is surprising is the movement of the U.S.-Germany interest rate differential.It seemed that the relationship between the exchange rate and the interest rate differential had broken, but has it revived? Many currency analysts are also surprised by this.
However, speculative traders appear to have anticipated it.
ReferenceYen/USD Euro/USD Futures speculative positions - Caution for the euro - GogoJungle
There are also significant factors besides the interest rate differential that determine USD/JPY.