China, which has kept its currency, the yuan, artificially low in order to keep the cost of its exports low and promote a domestic economic boom as its nation develops, is finding that the strategy has a negative effect: domestic inflation.

Unlike market-based currencies characteristic of the foreign exchange, China's government sets the yuan's value -- allowing it to trade in a tight band, currently at about or near 7.2730 yuan to the U.S. dollar. China argues that the yuan/dollar peg is necessary to promote economic growth and protect young, developing businesses and sectors.

And the strategy is working: China has registered +10% GDP growth for more than four years; has the world's third-largest economy, in purchasing power parity terms, behind the European Union and the United States; and has generated massive trade surpluses, particularly against the U.S.

Still, the U.S. counters that the peg keeps China's goods at artificially low prices and hence gives China's companies an artificial competitive advantage in trade. China has turned aside those and other U.S. concerns, particularly the trade deficit, arguing that if the U.S. wishes to lower its trade deficit, its citizens should save more and consume less, and the U.S. government should eliminate its budget deficit.

The dollar hit a new low against the euro Tuesday, with the euro trading above $1.48 for the first time, on word the Gulf Cooperation Council was debating whether to keep its dollar pegs.

Currency Trader Andrew Resnick, formerly of Next Capital of New York, told BloggingStocks Tuesday that the elimination of dollar pegs will add to pressure on the dollar.

"The pegs support the dollar to a degree, but the real factors here are the slowness of growth in the U.S. economy, and the U.S. trade deficit," Resnick said. "Until we see those two factors change, the trend is likely to remain dollar lower, across the board."