If the Fed wants to maintain a dollar exchange rate of 1.20 euros per dollar but the exchange rate rises, then in the short run the Fed can

Question

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If the exchange rate rises above the desired rate of 1.20 euros per dollar, it means that the euro has become stronger relative to the dollar, and thus the dollar has become weaker. To counteract this, the Fed can sell dollars and buy euros in the foreign exchange market. This would increase the supply of dollars and decrease the supply of euros, which would lead to a decrease in the exchange rate, bringing it closer to the desired rate of 1.20 euros per dollar.

If the Fed Wants to Maintain a Dollar Exchange Rate