There is a simpler answer. The biggest contributor to FX rates with relation to the USD is capital flow, not commercial trade (as it once was). The USD is the safety currency of the world. As risk appetite increases, there is capital flow into other asset markets, whether that be real estate, commodities or equities. But this only explains the negative correlation that we've experienced as of late. It was not always this way, and it seems to be turning back.
does anybody have an explanation for the significance of the recent USD surge and the apparent lack of any effect on the market?
USD correlates to debts. Less freshly printed USD, means supply of USD decreasing, therefore USD value increasing, which has been financing overseas assets, mainly energy.
Agree that is a potential reason, but not always the reason. I think it's better to think of market regimes. The USD can go through regimes that are based on different widespread rationales. Your specific example above doesn't explain the recent move though, since Treasury is issuing paper and Congress is increasing debt hand over fist.
Yes, the recent USD surge coincides exactly with the November jobs numbers and is sustained by fears of contagion in European markets such as Ireland, Greece, as well as the Dubai incident. Put these factors together, along with grim prospects for Europe and UK, and the USD has short term safety status. Remember the DX is heavily weighted towards the USD, compared to say the broad index that the Fed uses for measuring USD strength. If you go back to the Friday jobs for November, you'll see that Gold tumpbled, the dollar jumped and these stories together along with this misguided belief that a recover is underway, has fed the equities markets higher, while the dollar moves with it. The long term trend is still dollar down.
Shortie, is it perhaps an unwinding of the carry trade in anticipation of higher interest rates and a strengthening dollar? Just guessing.