Draw the graph · Macro · Foreign exchange market
The Fed buys dollars
Drag a curve sideways, or use its arrows. A curve you do not move is a curve you are saying stays put. Make each shift clear enough that a reader could see it.
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Demand for the currency shifts right. Supply of the currency stays put.
The central bank enters the market as a buyer. Its purchases add to the demand for dollars at every exchange rate, so demand shifts right. The supply of dollars from private sellers is unchanged. The dollar appreciates.
The dollar appreciates against the euro and more dollars are traded.
Common mistake. A common error is to shift the supply of dollars left because 'the Fed is taking dollars out of the market.' The Fed takes them out by buying them, and a buyer is on the demand side.
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