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Say, there is an increase in demand for dollars (as compared to the other currency, say yen), which will put appreciation pressures on dollar.

Then to counter this appreciation, we need to buy yen. This will increase supply of dollars - hence moderate the appreciation pressures.

Now, because of inflationary pressure, open market operations (OMOs) will be carried out to sell bonds and buy dollars.

But would it not decrease the dollar supply and again appreciate the currency?

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It is not, in general, possible for a country to hit more than one nominal target. If a country wants to peg their currency to another currency then they give up control of inflation, if they want to control inflation then their currency will need to float.

A country has to decide whether they want their currency to be worth a certain amount of some foreign currency (fixed exchange rate) or if they want it to be worth a certain basket of goods (inflation targetting) or some other target. But they can only pick one.

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