Dropping dollar hurts stock market

The dollar has been overvalued for years, puffed up by subsidized financial flows that artificially inflate its value relative to trade fundamentals, as we discuss in Trading Away Our Future. Rebalancing is apt to be messy. And at present the dollar is alleged to be hurting the stock market. From a story on CNN Money:

The real problem is even though [the] Fed attempted to be more hawkish, it was not supportive enough of the dollar," Hogan said.

Crude-oil futures climbed to new heights, as weakness in the U.S. dollar, influenced by the Federal Reserve's decision to stand pat on interest rates, sent prices past $140 a barrel.

Crude for August delivery reached a high of $140.39 a barrel in electronic trading on Globex. The contract closed at a record $139.64 on the New York mercantile exchange, up $5.09, or 3.8%, for the session after trading as high as $140.

Until recently, the market applauded FED rate cuts. Now, it is alleged, the FED's failure to raise rates in causing the market to drop. An intriguing reversal.

Apparently investors are fleeing U.S. stocks for foreign currencies and oil partly because they believe that further devaluation of the dollar is ahead. This could easily become a self fulfilling prophesy for a while.