According to the theory of purchasing power parity, exchange rates will adjust so that differences in:

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According to the theory of purchasing power parity, exchange rates will adjust so that the same basket of goods will have the same price in different countries. This means that differences in expected inflation rates across countries are offset, as countries with higher expected inflation rates will see their currencies depreciate to maintain parity with countries with lower expected inflation rates. The other options (interest rates, forward rates, international Fisher rates) may have some impact on exchange rates, but they are not directly related to the theory of purchasing power parity.

According to the Theory of Purchasing Power Parity, Exchange Rates