Step 1: Use the identity involving inverse trigonometric functions.
We are given the equation:
\[
\cos^{-1}(x-2) = \sin^{-1}(y+1)
\]
We know that \( \cos^{-1} \theta + \sin^{-1} \theta = \frac{\pi}{2} \) for all \( \theta \) in the domain \( [0, 1] \). Using this identity, we can rewrite the equation as:
\[
\cos^{-1}(x-2) + \cos^{-1}(y+1) = \frac{\pi}{2}
\]
Step 2: Solve for \( x \) and \( y \).
Now, apply the identity \( \cos^{-1} \theta = \sin^{-1} \sqrt{1 - \theta^2} \) to express both terms in a solvable form, and we eventually get the equation of the curve:
\[
(x - 2)^2 + (y + 1)^2 = 1
\]
This represents a circle.