Judge how well today's spot rate, the forward rate, uncovered interest parity and purchasing power parity each forecast future spot rates

Spot forecasts have four simple anchors. The current spot rate is the random-walk forecast and is hard to beat over short horizons. The forward rate and uncovered interest parity give the same forecast when covered parity holds: the high-yield currency weakens by about the interest differential. In practice high-yield currencies often weaken by less, or strengthen, which is why forwards forecast poorly and carry trades can pay. Purchasing power parity says the higher-inflation currency depreciates by the inflation gap. It has little power over a year or two but works better over long horizons. The trap is reading the forward rate as the market's expectation: it comes from interest rates by arbitrage.