Greek Debt Fears Lift the Dollar

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Greek flagThe U.S. dollar continued to strengthen early Wednesday as the euro faltered on renewed concerns over the Greek debt crisis. The debt-burdened nation's borrowing costs spiked yesterday following a report that it was trying to exclude International Monetary Fund involvement in a financial aid plan, which Athens later denied.

Still, the bond market's reaction showed how nervous investors remain over the ongoing Greek drama and its implications for the euro. The yield on Greek 10-year government bonds soared more than half a percentage point to 7.2% at one point Tuesday before easing back after the Greek government said it had no plans to demand a renegotiation of the aid plan to exclude the IMF.

That hurt the euro and helped the dollar. The U.S. Dollar Index, which measures the greenback against a trade-weighted basked of six major currencies, jumped 0.6% Tuesday, a large move in currency terms, and was trending higher early Wednesday.

A weaker dollar is seen as generally good for U.S. equities, as more than 40% of revenue generated by S&P 500 ($INX) companies comes from overseas, but the inverse correlation between stocks and the dollar seems to have run its course, analysts say.

"The global economy is huge, and more and more indicators suggest that it is booming again, so Greece appears increasingly like an outlier," said Ed Yardeni, president of Yardeni Research, in a note to clients Wednesday. "This has to be the longest Greek drama ever performed. It will end eventually without any major tragedy for the U.S. stock market, in my opinion."
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