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November 29, 2010

What Is Powering The Dollar Rally.

There are 2 factors powering this correction in the dollar. One is the political tension, and the military tension we got last week on the Korean peninsula. And you know, there`s a reflexibility, almost Pavlovian quality to this type of dollar rally. Whenever there is any type of military conflict anywhere in the world, traders buy the dollar.The idea is, there is some tension, so we need a flight to quality. And for whatever reason the dollar is perceived as representating that quality. So when you are nervous about something and you are seeking refuge, they sttill seek it in the dollar because it works. They will keep doing it until it does not work.

Because it certainly does not improve the fundamentals of the US economy or the US dollar just because there is military action going on in Korea. If anything, if things escalate and we get involved and have to spend more borrowed mone, that actually makes the situation worse for the dollar. But the trader does not think that far ahead...

Related: PowerShares DB US Dollar Index Bullish (NYSE:UUP) and PowerShares DB US Dollar Index Bearish (NYSE:UDN)

Peter Schiff`s comments on the economy, stock markets, politics and gold. Schiff is the renowned writer of the bestseller Crash Proof: How to Profit from the Coming Economic Collapse.
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