Dropping dollar

The upbeat October's nonfarm payroll of 337K was well ahead of 175K expectations and at a seven-month high, but it did not help the dollar from sliding to all time low against the Euro. That's not the only currency gaining on the Greenback, the dollar fell 0.6% against the British pound, the dollar hit a new nine-year low on the Swiss franc and a 12-year low against the Canadian dollar. Given the improving employment picture and higher interest rates in the U.S. you would expect dollar to strengthen not weaken.

Strengthening economy in the U.S. and higher interest rate should attract world investors therefore propping the dollar higher. But that's not the case due to record balloning national debt, which is very close to the $7.384 trillion limit imposed by the Congress. Treasury announced a delay in the formal announcement for the four-week bill and perhaps in the auction itself if the congress does not enact legislation to raise the debt limit. The other cause of lower dollar is the trade gap we currently run in the U.S.

Don't expect any intervention from the europeans or the Japanese in helping stop the slide of the dollar. European Central Bank president Jean-Claude Trichet, who spoke after the ECB's interest-rate meeting on Thursday was not alarmed about either the rising euro or the high oil prices.

The dollar has been on a slide throughout President Bush's first term and with no near-term plans to reverse the record U.S. trade and budget deficit it still has more downside. On the other hand, U.S. companies that account for large percent of their revenues from international sales should benefit from lower dollar.

All the weakness in the dollar is certainly helping gold with gold futures closing at a 16 year high. As mentioned yesterday, gold stocks (stocks mentioned KGC, FCX, PDG did very well today) should perform well into this decling dollar, higher interest rate, higher deficit and trade balance environment.