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US Dollar Will Stay Weak Until Economy Improves: Gross

Policy makers are likely to continue backing a weak dollar until the economy shows substantial improvement, Pimco's Bill Gross told CNBC.

Bill Gross
CNBC.com
Bill Gross

Worse-than-expected unemployment data Friday reinforced that the country is still struggling to escape the worst downturn since the Great Depression, said Gross, co-CIO of Pimco, which runs the world's largest bond fund.

The Federal Reserve is likely to keep interest rates low which in turn weakens the dollar—but don't expect any government officials to officially endorse a low currency.

"The strong dollar is always the policy so to speak," Gross said during a live interview. "One of the ways as a country to get out from under a debt burden is to devalue."

Government leaders are following the pattern of the Depression, when the US government was slow to join the global move toward weak currency but eventually came around.

"Typically the Fed does not move in terms of tightening until unemployment has been going down for at least 12 months and job creation has been at 200,000 or more," he said. "We've got a lot of jobs to create before the Fed even considers raising rates."

The Labor Department said Friday that the economy lost another 263,000 jobs during September—analyst projections had been for 250,000—while the unemployment rate rose to 9.8 percent.

Economic weakness will continue to pressure stocks, despite the six-month rise of more than 50 percent, said Gross, who predicted some drop is likely in the equity markets. The result could be more demand for bonds.

"The stock market and the high-yield market on the bond side have gone up by 50 percent since March and that's a big increase. We certainly expect a rational pullback if anything based on that," he said. "Bonds and not just Treasurys but some high-quality corporates at 5 or 6 percent make a lot of sense."

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