The International Fisher Effect implies that a currency with a lower nominal interest rate will appreciate against another currency with a higher nominal interest rate. However, in general, a currency with a rising interest rate will also appreciate (by attracting investors).
How can this apparent paradox be resolved? Is it that the rising interest rate causing currency appreciation is more related to the direction of the change (of the difference) in nominal interest rates, and that the IFE is more referring to the absolute difference in nominal interest rates - or is it something else, e.g. currency appreciation from rising interest rates in the short run, but the opposite movement in the longer run?
EDIT: this question isn't really about interest rate parity or anything arbitrage related. Instead, Instead the question is about forecasting, esp. in the current environment. Concretely, if e.g. USD's nominal interest rates go up (or are expected to go up), can we expect USD to appreciate or depreciate vs e.g. the EUR? In the short term it seems to be USD appreciation, but in the longer run if high USD interest rates (vs EUR rates) are maintained, then would depreciation be the result - if so, how much appreciation or depreciation compared to the starting point?