Schweser states that a current account deficit means that a country’s currency should depreciate. It also states that a capital/financial account surplus means its currency should appreciate. Leaving aside official reserves, capital/financial account + current account = 0. Accordingly, a current account deficit tending to depreciate a currency will be offset by a capital/financial account surplus tending to appreciate a currency. Do the effects neutralize one another such that one cannot say, as a general matter, how a current account deficit or surplus would affect the exchange rate?
Depends on whether there’s low capital mobility or high capital mobility… if it’s low, then Current Account effect dominates, if its high, Financial Account should dominate.