The US dollar has traditionally been a safe-haven asset, meaning whenever people are afraid, they sell ‘risky’ assets and flee to the safety of the US dollar. The same goes for US Treasuries.
Indeed, at the height of the global financial crisis (right after Lehman Brother’s bankruptcy in September 2008), both the US dollar and Treasuries surged. The Chicago Board Options Exchange Market Volatility Index (VIX) also spiked at that time. In uncertain times, the VIX is probably the purest measure of the market’s fear because it tracks expectations of volatility in US stocks.
Meanwhile, risky assets – those most susceptible to an economic downturn, like industrial commodities, junk bonds, small-cap stocks – plunged.
In the period after the zenith of this panic, the value of the US dollar, US Treasuries, and the VIX continued to strongly correlate with the resurgence of fear and uncertainty in the global financial markets.
However, starting the week of February 21, 2011, this pattern appears to have broken down.