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Dollar Rallies, Stocks Struggle. Is the Flight to Safety Back On?

Dan Burrows
Daily Finance [1]
Friday, February 5, 2010

Dow 10,000 lives, at least for another trading day. Before we shed a tear digging through the decidedly mixed data that was Friday’s unemployment report [2], let’s count our blessings U.S. equity markets are holding up as well as they are. The jobs data might be grabbing the headlines, but the real news is that the euro has caught swine flu. That’s why the dollar is rising — and stocks are struggling.

Lest we forget, major averages in Europe were hammered overnight amid increasing fear that the so-called PIIGS of the Continent — Portugal, Italy, Ireland, Greece and Spain — could welsh on their debts. That’s put the flight to safety on, with the correlation between the U.S. dollar and equities holding true once again.



“In the overall scheme of things, considering the intense fiscal problems in Euroland, the prospect of sovereign debt defaults and the future of the regional monetary union, today’s U.S. payroll report is really a secondary event,” David Rosenberg, chief economist and strategist at Canada’s Gluskin Sheff [4], told clients Friday.

And so, the buck is back with a vengeance. Indeed, the U.S. Dollar Index [5], which measure the greenback against a trade-weighted basket of six major currencies, has gained nearly 5% since mid-January — a huge move in currency terms — and the relatively risky asset class of equities is paying the price. The dollar found its footing on January 14 and since then the Dow Jones Industrial Average ($INDU [6]) has given up more than 7% and the broader S&P 500 ($INX [7]) has sloughed off more than 8%.

Full story here. [1]