The conventional wisdom is that to flight deflation you do quantitative ease, essentially printing money….more money in circulation, in theory it should be worse less…
Therefor, the knee-jerk reaction to talk of more quantitative ease from the Fed is to sell the dollar across the board.
In practice, the flows are less clear. Sometimes, a currency of an economy facing deflation rises.
Deflation causes the value of debt to rise (opposite of inflation where debt is inflated away). With the world awash in US debt, the rush to try and pay it back could strengthen the dollar. That is what happened in 2008 during the run-up to theLehman debacle….
