What a Week: Dollar Dilemma

As shoppers hit the stores Friday morning, the stock market hit a wall.

The holiday-shortened week started out relatively strong, with a slew of merger activity featuring Freeport-McMoRan's(FCX Quote) $26 billion buyout of Phelps Dodge(PD Quote) and Blackstone Group's $36 billion offer for Equity Office Properties Trust (EOP Quote).

But the M&A news failed to inspire buyers Monday and the week ended on a pessimistic note, largely spurred by deep declines in the value of the U.S. dollar. Whether the stock market uses the dollar as an excuse for more selling will be seen next week when Black Friday sales are tallied and the next round of economic data pours in.

In a shortened trading session Friday, the three major averages slipped within the first hour of trading, but rebounded somewhat as the session wore on. By the 1 p.m. market close, the Dow Jones Industrial Average fell 0.35% to 12,283.37, down 0.5% for the week. The S&P 500 fell 0.3% Friday to 1401.27, and was essentially flat for the week, while the Nasdaq Composite slid 0.2% to 2460.26 Friday but rose 0.6% for the week.

The real drama was on the currency trading floors, however, as the dollar continued to plunge against the euro and the Japanese yen after weakening Wednesday. On Friday, the dollar fell through and stayed below key resistance levels -- the euro at $1.30 and the dollar at 116 yen. By the end of the New York trading session Friday, the euro rose 1.05% to $1.31, a 19-month high, putting it up 2.5% on the month vs. the greenback and 10.6% on the year, according to Ashraf Laidi, chief foreign exchange analyst at CMC Markets. The dollar fell 0.3% to 115.87 yen Friday, a three-month low.