Speculator Expectations and Exchange Rates

Question

How does an increase in speculators’ expectations of future U.S. monetary easing affect the FX market as shown in the graph?

Accepted Answer

It leads speculators to sell dollars in anticipation of depreciation, increasing the supply and lowering the exchange rate.

Answer

It has no significant effect because future policy expectations are already priced in.

Answer

It causes speculators to buy dollars, shifting the demand curve right and appreciating the domestic currency.

Answer

It simultaneously shifts both the demand and supply curves to the right, leaving the exchange rate unchanged.