Draw the graph · Macro · Foreign exchange market
Traders expect the dollar to 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 shifts right. Supply of the currency shifts left.
Anyone expecting the dollar to rise wants to hold more dollars now. Europeans buy more dollars at every exchange rate, so demand shifts right. Holders of dollars stop selling them, waiting for the higher price, so the supply of dollars shifts left. Both shifts raise the exchange rate today. Quantity is ambiguous.
The dollar appreciates against the euro now, while the quantity traded may rise or fall.
Common mistake. Students often shift only demand. Expectations move both sides: buyers rush in and sellers hold back. Both push the dollar up.
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Lesson: Trade & Exchange Rates