So what it's true? A Chinese official trashed our currency, so the dollar is down and gold reaches another high.
"The continuous depreciation in the dollar, and the U.S. government's indication that, in order to resume growth and maintain public confidence, it basically won't raise interest rates for the coming 12 to 18 months, has led to massive dollar arbitrage speculation," Liu Mingkang, chairman of the China Banking Regulatory Commission, said Sunday in Beijing at the International Finance Forum, according to news reports.
This is a different type of gold rally, with support coming from both sides of the market -- investment [and] fundamental," said Darin Newsom, a senior analyst at Telvent DTN.
The International Monetary Fund said traders are probably using the dollar to fund “carry trades” across the world and the currency may still be overvalued even after its slide this year.
“There are indications that the U.S. dollar is now serving as the funding currency for carry trades,” the IMF said in a report published today. “These trades may be contributing to upward pressure on the euro and some emerging economy currencies.” While the dollar “has moved closer to medium-run equilibrium,” it is still “on the strong side.”
The IMF is also warning on the Chinese currency being significantly undervalued. We've covered China's currency manipulation many times and noted almost all of the U.S. trade deficit with China can be attributed to Chinese currency manipulation.
In The Bubble Next Time, Peter Boone & Simon Johnson, mention something as a major threat to the United States, all too familiar to Japan in their lost decade, known as the Carry Trade:
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