Prospective Capital Flows and Currency Movements: U.S. Dollar versus Euro

Abstract

What accounts for the dollar’s late-2008 surge against the euro after a multiyear decline? In this case, students consider whether the late-2008 dollar appreciation was an aberration, and what may have caused it. Would this trend reverse, or would global currency market trends continue to propel the dollar? Suitable for both core and elective MBA courses in global financial markets, this case explores factors pointing to further euro appreciation and to others favoring the dollar. Sorting through mounds of evidence is necessary before forecasting the exchange rate’s likely path. Filtering that evidence requires both relatively standard thinking about FX markets and an analysis of past and prospective international capital flows.