A Different Way to Look at Exchange Rates

Exchange rates are particularly sensitive to geopolitical risk. They are influenced by conventional external factors such as interest rates, purchasing power parity and balance of payments, but they are also subject to geopolitical tension, policy uncertainty, expectation inertia and the impact of risk tolerance. Thus, the foreign exchange market is a useful tool for assessing international economic tensions. Our methodology is based not on the traditional representation of the direct and inverse exchange rates of, say, the U.S. dollar against the euro, yuan or rupee, but on the representation of the baseline increase in the absolute exchange rate…