What is the described outlook for the US dollar given the Fed keeps rates unchanged?

• A. It is expected to strengthen.
• B. It is expected to lose value.
• C. It will be volatile.
• D. It will remain unchanged.

Answer: (B)

The main idea is how policy expectations shape currency values through the yield advantage. The dollar tends to strengthen when U.S. rates are rising or expected to rise more than those abroad, because higher yields lure capital into dollar-denominated assets. If the Fed keeps rates unchanged, the path to higher U.S. yields moves sideways or pauses, which reduces that relative yield edge. If traders anticipate other major central banks maintaining or lifting their own rates, or simply offering higher returns, capital can shift into those currencies. As a result, the dollar is expected to lose value in this scenario.