For over forty years, many economists have found that uncovered interest rate parity (UIRP) does not hold. Most previous findings indicated that currency forward premiums negatively predict changes in spot exchange rates, however, results based on data after the global financial crisis show different patterns. In this paper, I explore the relationship between US economic policy uncertainty and UIRP and find that, when uncertainty is extremely high, forward premiums positively predict changes in spot exchange rates, especially for Swiss Franc and Japanese Yen. In addition, when uncertainty is moderately low, UIRP violations for currencies of European countries and Canada are more prevalent.

1. Introduction 4
2. Uncovered Interest Rate Parity 5
3. Related Literature 6
4. Data and Model 12
4.1 Data 12
4.2 Model 14
5. Empirical Evidence 15
5.1 The Fama Regression 15
5.2 The Fama Regression and US EPU 19
5.3 The Fama Regression and US EPU: the pre-crisis and post-crisis period 24
5.3.1 the pre-crisis period 25
5.3.2 the post-crisis period 28
6. Robustness Check 28
7. Conclusion 31
References 33

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