In the 1980s, the Fed raised interest rates six times to fend off inflation as oil prices rose. The Fed reasoned that rising oil prices had the same affect as raising taxes or an interest hike. However, the Fed was not considering the affects on foreign domestic investment. FDI is bond gold. Money flows back into the US as interest rates rise and foreigners begin buying bonds. The dollar increases in value as foreigners buy dollars to buy the bonds. In 2010, rising oil prices and a weak dollar are not being met with rising interest rates. As a result the euro gains in strength against the dollar. Central banks continue to buy up euros. European economics is not exciting and the flight to the euro seems poor. China balances its foreign reserve evenly between the dollar and the euro holdings. The low fed interest rates will allow the euro to gain in strength against the dollar. More yuan will flow to the euro as it gains in strength against the dollar. [Learn More ...]

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