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Picking Sides in a Currency War

Are the US and China 'really' on the brink of a currency war?

As you likely know Washington and the European Union have accused China of keeping the yuan artificially low to boost exports, undermining jobs and competitiveness in Western economies.

But talk is one thing - action is another. And there are positive developments amid all the rhetoric that suggest cooler heads will prevail.

The Treasury delayed a much-anticipated decision on whether to label China as a currency manipulator until after the elections on Nov. 2 and the G20 summit in South Korea on Nov. 11.

Pundits widely believe the delay reflects a desire by the Obama administration to pursue diplomacy to resolve the dispute with China rather than provoke a confrontation that could potentially lead to a trade war and affect long-term interest rates.

In its statement, the Treasury seemed to be encouraged by China's recent action to allow its currency to rise by roughly 3 percent against the dollar since June 19.

"Since September 2, 2010, the pace of appreciation has accelerated to a rate of more than 1 percent per month," it said. "If sustained over time, this would help correct what the IMF (International Monetary Fund) has concluded is a significantly undervalued currency."

However that's not to say this sore has healed - it's just not getting worse.

China has argued time and again that moving too quickly with currency reforms could devastate its export-driven economy.

And Beijing also has said the USA has nobody to blame but itself for high debts and an easy monetary policy that has flooded the market with newly printed dollars, weakening the U.S. currency.

What must every investor know about these developments?

Get a quick lesson from from Anthony Scaramucci of Skybridge. Watch the video above!




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Trader disclosure: On Oct. 21, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Cortes owns (K); Cortes owns (TSN); Cortes is short crude oil; Cortes is short gold; Cortes is short (RSX); Cortes is short the U.K. Pound; Cortes owns U.S. Treasuries; Cortes owns the S&P 500; Terranova owns (APA), (AAPL), (AXP), (C), (CRM), (GOOG), (GS), (FCX), (MMM), (ORCL), (PCP), (PEP), (PFE), (TBT), (UPL), (VRTS), (XBI); Adami owns (AGU), (BTU), (NUE), (C), (GS), (INTC), (MSFT); Adami’s wife works at Merck; Weiss owns (AAPL); Weiss owns (QCOM); Weiss owns (PWER); Weiss owns (VZ); Weiss owns (CSX)

For Joe Terranova
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