Assume that the European risk-free interest rate was greater than the U.S. interest rate in the past. Now inflation has accelerated in the euro area, and the European Central Bank has increased interest rates significantly to stave off further inflation. How is this likely to affect the dollar-euro forward rate (expressed in dollars per euro)?

The forward discount will decrease.

It will not affect the forward rate.

The forward premium will decrease.

The forward discount will increase.

The forward premium will increase.