Speculator Expectations and Exchange Rates
How does an increase in speculators’ expectations of future U.S. monetary easing affect the FX market as shown in the graph?
A
It has no significant effect because future policy expectations are already priced in.
B
It causes speculators to buy dollars, shifting the demand curve right and appreciating the domestic currency.
C
It simultaneously shifts both the demand and supply curves to the right, leaving the exchange rate unchanged.
D
It leads speculators to sell dollars in anticipation of depreciation, increasing the supply and lowering the exchange rate.
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