Today saw the dollar continue to drop, slipping to below 74 before closing at 74.27, getting closer and closer to the March 2008 low. In turn, commodities are making new highs with gold closing above $1,500 and silver above $46. The cyclically sensitive currencies like the Aussie dollar and the Canadian loonie are strengthening as well against the dollar. Even the Euro, with all its debt challenges is stomping on the greenback, apparently unaffected by all the talk of debt restructuring. Emerging market currencies continue to firm against the dollar and as one would expect, stocks rise against our falling currency.
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We expect that the Fed will work out a way to extend its program of quantitative easing, possibly using funds from the maturing mortgages on its books. If this indeed does occur, the push into risk assets will most likely intensify and the trade deficit will decline.