Draw the graph · Macro · Foreign exchange market
A US recession cuts imports
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 left.
Buying fewer European goods means Americans need fewer euros and sell fewer dollars. At every exchange rate fewer dollars are offered, so the supply of dollars shifts left. The demand for dollars is unchanged. The dollar appreciates.
The dollar appreciates against the euro and fewer dollars are traded.
Common mistake. Some students shift the demand for dollars left because 'the US economy is weak.' A weak US economy cuts imports, which cuts the supply of dollars. That pushes the dollar up, not down.
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Lesson: Trade & Exchange Rates