Will The Declining Dollar Drag Stocks Down?

  • January 6, 2003
  • Vincent Mao

The dollar index
has now fallen six out of the last ten session
as tensions of war with Iraq have held money from international investors at bay
and in the safety of their homelands. Iraqi President Saddam Hussein turned up
the heat today as he publicly criticized the UN inspectors and accused them of
engaging in “pure intelligence work.” 

The greenback may further weaken as the rising
fear of war could also cause foreign investors to shift money out of dollar-denominated
assets. Meanwhile, both the euro and the yen continue to strengthen. The
March euro
(
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1.04  and the yen
(
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0.550 at 84.25. Meanwhile the March dollar index
(
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Treasuries once again fell on news that President
Bush’s $600 billion economy stimulus plan was double the amount of the original
plan. Bush’s plan will call for more tax cuts and an end to taxing of corporate
dividends. Traders are worried that the plan will lead to deeper budget
deficits, thus forcing the government to raise money by selling  more debt which
will drive treasury prices lower. The March
10-year contract
(
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113 7/32 and the 30-year contract dropped 8/32 to 110 1/32. 

February gold
hit a new contract high of 355.30 earlier in the session amid continuing war
jitters. By the close, gold
(
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Stock index futures pushed higher for the fourth
straight session on this first full trading week of the year. Stocks got a big
boost despite the slightly worse-than-expected services report. The ISM Services
index for December gained for the eleventh consecutive month. Although the index
came in below expectations at 54.7 vs. an expected reading of 55.5, a reading
above 50 still signals expansion. The March S&Ps
(
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NDX
(
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