Question

Explain what happens to the US dollar if the FED starts to pursue expansionary monetary policies. In detail please

Answer 1

An expansionary monetary policy in the market will lead to a fall in the interest rate, at a lower rate the savers and investors who are saving the money will earn a lower benefit. they will look for other places where the interest rate is high for example, London. this will lead to more and more people saving in London and that will increase the outflow of dollar and increase the supply of Dollar for the Britain. At a higher supply the Dollar will start to depreciate against the pound.

it will continue to the point where the Fed has to increase the interest rate again or adopt a contractionary monetary policy.