The uncovered interest rate parity between the dollar and the euro is not verified

The uncovered interest rate parity is verified (we take the example of the dollar and the euro) if the spread between dollar and euro interest rates is equal to the expected depreciation of the dollar against the euro. If the uncovered interest rate parity were verified , the dollar would be expected to depreciate against the euro to offset the fact that dollar interest rates are higher than euro interest rates across all maturities. On the contrary, since 2015, dollar interest rates have risen relative to euro interest rates while, at the same time, the dollar has appreciated against the euro. Either exchange rate expectations have been wrong for a long time or, more likely, the uncovered interest rate parity is not verified. It is possible that exchange rate movements have been slower than explained by the theory. In theory, a rise in US interest rates relative to euro-zone rates causes an instant appreciation of the dollar against the euro, followed by a slow depreciation. In practice, the appreciation of the dollar against the euro is gradual rather than instantaneous. This opens up opportunities for arbitrage gains, with a long position in the dollar against the euro being a winner in terms of both interest rates and exchange rates.