Measuring and analyzing the direction of causality in the relationship between the value of the euro and the pound sterling in the currency trading market (forex)
DOI:
https://doi.org/10.25007/ajnu.v12n3a1763Abstract
One of the crucial subjects that must be addressed in order to assess the impact and influence of a connection in order to secure profitability and hedging is the process of assessing the mutual influence between currency pairs. In this study, the Euro-Dollar pair (EUR/USD) and the British pound-dollar pair (GPB/USD) are two important currency pairs that are the subject of this type of relationship experiment. Utilizing daily data for the year 2022 and depending on time series tests for specific equations, this study aimed to establish the existence, continuity, and causative patterns of this relationship during the most recent time period accessible. It was concluded from the standard results that changes in the euro positively affect changes in the value of the pound by up to 97%, while changes in the value of the sterling pound affect the euro by a lesser rate of up to 64%, and that this difference in response is emerging. The standard results also proved the significance of the used model and its explanatory power, which proved the existence of a causal relationship in two directions and a number of which are connected to the subject of Brexit and the United Kingdom's exit from the European Union
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