Topic / economics

Exchange Rates

Currency values, competitiveness and the transmission of monetary and trade shocks.

Core exam brief

Know the idea before you use the evidence.

Definition

An exchange rate is the price of one currency expressed in terms of another.

Chain of analysis

A depreciation tends to make exports cheaper and imports dearer, potentially improving net trade while increasing imported inflation.

Evaluation trigger

The outcome depends on elasticities, time lags, import dependence, confidence, capital flows and whether the exchange rate is fixed or floating.

Analysis and example bank

29 July 2026 · United Arab Emirates

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UAE keeps Base Rate at 3.65% under the dirham's US dollar peg

On 29 July 2026, the Central Bank of the UAE kept its Base Rate at 3.65% after the US Federal Reserve left its Interest on Reserve Balances rate unchanged. The decision is a direct exchange-rate case because the Base Rate is anchored to the Fed under the UAE's fixed dirham-dollar regime. CBUAE's operating framework also states that it intervenes in the foreign-exchange market around USD/AED 3.672-3.673 to maintain the peg.

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Dubai and its coastline photographed from the International Space Station

13 August 2026 · United Kingdom

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ONS reported that the UK's total goods-and-services trade deficit widened by £0.3bn to £8.0bn in Q2 2026

ONS reported that the UK's total goods-and-services trade deficit widened by £0.3bn to £8.0bn in Q2 2026. The headline hides a major contrast: a £60.7bn goods deficit was largely offset by a £52.7bn services surplus. This is a strong balance-of-payments example because it teaches students not to confuse the trade balance with the entire current account.

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Rows of terraced houses in Dorset, United Kingdom

30 July 2026 · United Kingdom

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Bank of England holds Bank Rate at 3.75%

The Bank of England kept Bank Rate at 3.75% in July 2026. Three MPC members preferred an increase to 4.0%, showing how policymakers were balancing persistent inflation risks against signs of weaker demand.

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The stone facade of the Bank of England in London