Original title: AI and Exchange Rate Predictability
Amin Izadyar · August 2026
For decades, economists struggled with the exchange rate disconnect puzzle: real-world economic data failed to predict how currency values would shift. This study tests if generative artificial intelligence can solve that issue. The author fed economic data releases for major currency pairs into ChatGPT and DeepSeek. These AI models evaluated the fundamental economic strength of each currency. The approach worked. The AI-driven measures successfully predicted currency returns across different markets. A basic investment strategy buying strong currencies and selling weak ones delivered an annual Sharpe ratio, a measure of return compared to risk, above 0.7. Further tests confirmed the models relied on genuine reasoning rather than memorizing data, with central bank interest-rate rules serving as the main economic bridge.
You are trying to guess which of two runners will win a race by looking at their training logs. Sometimes the runner with better training loses, and you can't figure out why. In this paper, the researchers used AI to analyze not just training logs but also diet, sleep, and weather on race day, and found that this broader analysis could predict winners more accurately. They also discovered that a specific rule about how runners pace themselves—similar to how central banks set interest rates—was the key connection.
For decades, economists thought exchange rates moved independently of economic fundamentals—a puzzle. This paper shows that generative AI can extract predictive signals from economic data, offering traders a profitable strategy and helping central banks understand how fundamentals drive currency values. It challenges a long-standing assumption in international finance.
The study only tests two AI models (ChatGPT and DeepSeek) and focuses on major currency pairs. While look-ahead bias is mitigated, it may not be fully eliminated. The results are based on historical data and may not generalize to future periods or other currencies.
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AI and Exchange Rate Predictability — Amin Izadyar
Abstract licence: CC0
Explanation generated by Synthesis from the abstract — it is not the original paper. This is a preprint, so it hasn't necessarily been peer reviewed.