Question

During the second half of 2014, the U.S. dollar made significant gains against all other major global currencies, such as the British pound, Swiss franc, Euro and Japanese yen.” (CNN Business, Jan 5th, 2015) You are working as a foreign exchange trader and your manager has raised the following questions for you to answer.

What could the Federal Reserve (Fed) have done to stop the rise in the dollar?

Answer 1

In the second half of 2014, the US dollar appreciated for the first time at least 14% against all the major currencies such as euro, or Japanese yen as investors expected the Fed to increase the interest rates, following a higher GDP growth in the US.

Federal Reserve could have decreased the interest rates in order to stop the rise in the dollar. A fall in interest rates would have made investors withdaw their investments from US markets and its currencies to other currencies where they expected a higher profitability which in turn would have stopped the rise in dollar.