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Is The U.S. Dollar No Longer A Safe Haven?

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February 23, 2011 – Comments (0)

Anytime the global market markets have come under pressure the U.S. Dollar has rallied higher as a safe haven trade. Investors will usually run and buy U.S. Dollars as a form of security. After all the dollar is the world's reserve currency. However, since the protests and riots began in the Middle East over a month ago the U.S. Dollar Index has declined lower. This is very uncharacteristic of what we have seen over the past 10 years. Usually, when the U.S. Dollar Index declines the stock market indexes and most commodities will increase and rise in price. However, that is not happening at this time.

Many investors believe that the U.S. Dollar is being forced lower by the Federal Reserve Bank as they continue to flood the market with cash reserves in order to create inflation. Essentially, they are diluting the U.S. Dollar on a daily basis. As the U.S. Dollar declines against the other major currencies of the worlds emerging markets countries such as China, and Brazil have openly spoke out against the Federal Reserve Bank's actions. These nations are facing massive inflation and higher interest rates. Whenever nations face higher interest rates their economies will slow down dramatically. 

Currently, the United States has had a zero percent interest rate policy since December 2008. When rates are this low the economy will usually stimulate and create a higher gross domestic product(GDP). However, when the economy becomes too hot and creates a bubble as it always does then the rate hike that must follow will usually deflate the economy. It is a pick your poison type of system for the Federal Reserve when you have a weak U.S. Dollar Policy.

Right now the U.S. Dollar Index has some support around the $77.00 level. If that low level is broken to the down side the next daily chart support area for the U.S. Dollar Index will be around the $75.50. Most traders and investors should realize that a weak and declining U.S. Dollar means higher prices for goods and services for every consumer. 


Nicholas Santiago
InTheMoneyStocks.com

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