Set out the main approaches used to forecast currency movements

Purchasing power parity says exchange rates move to offset inflation differentials; it works poorly short term but anchors long-run fair value. Relative economic strength looks at growth and interest differentials: strong growth and attractive yields draw capital and support the currency. Uncovered interest parity implies higher-yield currencies should depreciate, yet carry trades often profit for long periods before sharp reversals. Capital flows and the savings-investment balance link persistent current account deficits to eventual depreciation. The portfolio balance approach says investors demand higher returns to hold growing stocks of a country's assets, so rising government debt can weaken the currency. Government intervention matters too. The trap is using one model mechanically; horizon determines which forces dominate.