Draw the graph · Macro · Foreign exchange market
European interest rates rise
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 stays put. Supply of the currency shifts right.
To buy euro bonds, American savers must sell dollars for euros. At every exchange rate they offer more dollars, so the supply of dollars shifts right. The demand for dollars is unchanged. The dollar depreciates.
The dollar depreciates against the euro and more dollars are traded.
Common mistake. Students often shift the demand for dollars right, the mirror image of the US-rate-hike case. Here the higher rate is abroad, so the flow runs out of dollars. That is supply.
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Lesson: Trade & Exchange Rates