Relatively high rates of U.S. inflation compared to other countries will increase the supply of, and decrease the demand for, dollars in foreign exchange markets.

When the U.S. experiences relatively high inflation rates compared to other countries, its goods and services become more expensive relative to foreign goods and services. This makes U.S. exports less competitive internationally, decreasing foreign demand for dollars to buy American goods. Simultaneously, Americans may find foreign goods more attractive price-wise, increasing the supply of dollars as they exchange more dollars for foreign currencies to buy these goods.