currency: interest rate, inflation, and appreciation/depreciation

• Economic growth
• An increase in U.S. economic growth would weaken the dollar because the economic growth would stimulate the demand for imports and foreign currencies. This would result in a weakening of the dollar, relative to other currencies.
• Unexpected expansionary fiscal policy
• increase in real interest rate and then appreciation of the currency
• higher inflation, economic growth, and more imports --> depreciation of the currency
• However, financial capital is more mobile than the goods market so the overall short-run effect would be for the currency to appreciate