Well it wouldn't be the first time I answered the wrong question. However, I pulled out a long term chart of the USD Index. From some time in '85 to '95 the USD fell from 140.35 to 78.19. The fall was very steady from 85 - to mid 88. Very few people would view that time as a bear market in equities. The correlation was poor, but if anything inverse, I would assume from eyeballing it. (Recently it is around 95 from a high of 107.76 in '02. This is from the Fed web site's Dollar Index not the Nybot's.) My thought is rather than assume a relationship is really driving decisions figure out a way to measure it or see it's consistent influence and then work it. I certainly don't have any foreign currency answers or authority, just trying to stimulate a little thought.
How about if we try to adjust the SPX for the drop in the dollar? Here is a chart of the cash S&P multiplied by the cash US Dollar index. It shows that we are still consolidating below the March 20 highs.
A strong Euro is not directly the biggest problem of European for exportation, because as the USA is the biggest consummer of products made in America, the samething is true for European, ie. people in Europe buy european products. Unlike the USA, they cannot sustain a strong currency because their productivity is more lower than USA, the consequence is that American products will be more attractive for them (a proof of that, the last week GE airplane's motors was too lower price against european corporations, a proof that European aren't able to compete with their strong currency! The worse, when they have seen that, they have canceled the submission ... economic war in the horizon). Also, the other drawback of european gov. is that they have too many different gov., this is hard to handle and take decision!
There is an article on financial sense about that http://www.financialsense.com/Market/archive/2003/0505.htm <IMG SRC=http://www.financialsense.com/Market/archive/images/2003/May/05/dollar.gif>
I was going to start a thread asking questions about just this. It seems to me the FED is shit scared of DEFLATION. It appears the FED is going for INFLATION hence the drop of the US dollar. If you compare all currencies , the US dollar is falling against them all and consequently Americans are going to pay more for imported goods. This is going to be offset by the fact Americans will not travel internationally as much so they will spend more money at home. I agree with another poster, Europe is really going to suffer since they rely on American tourist spending. Also selling goods into US. Is this the beginning of the end of the US dollar being the dominant world currency, well who knows ? What are the stock markets going to do ? Is this ( declining dollar) going to force international investors to park their money in US because European and Asian companies are going to be decimated by this? I am of the opinion Greenspan really doesn't know what he's doing.
Soros made $ on the Deutschemark with the radical premise that a tight monetary policy combined with a loose fiscal policy is bullish for the currency. (ECB) Seems like this would be a good working scenario when there isn't a raging bull in some equity or debt market that would offer an even greater draw to speculative money.
The FED is neither feared by inflation or deflation, the FED is provoking INFLATION then DEFLATION then INFLATION then DEFLATION then INFLATION then DEFLATION etc... etc... etc... etc... etc... etc... that is to SAY A SCIENTIFIC PROCESS FOR RIPPING THE WHOLE ECONOMY FROM THE PEOPLE THROUGH UNSTABILITY WHICH CAUSES ECONOMY TO WRECK, PROVOQUING BUSINESS STAGNATION, UNEMPLOYMENT, POVERTY AND OBLIGE TO BORROW BORROW AND BORROW UNTIL THE PROPERTIES OF THE WHOLE NATION WILL BE IN THE HAND OF THE HOLDERS WHO SIT BEHIND THE FED AND ALL CENTRAL BANKS IN THE WORLD IN FACT. Since you are not careful enough about some fed declarations, they said a few months ago that they will buy anything : with what money they buy huh ? With money they "print" freely for their own use, money that are backed by nothing so they buy the whole nation with something that has no value and not only that this money they print for their own use is backed by interests that the nation will have to pay to them, that is to say they stole twice in the same process ! You haven't perceived the consequences yet since we are just beginning of the process of reversal : you will have to pay and children of your children etc.. through many generations because the debt has been accumulated for dozens of years and it is simple math that you will never be able to pay back the interest not even speaking of the capital. From free nation you will begin to enter into a slavery or socialo-communist nation. Europe has been already engaged in that process before United States now both will begin to show their true ugly face : totalitarism people thought has disappeared will now appear again. If you ask congress an official list of the holders of the FED, you will be surprised to learn than they won't be able to give it you. It needs a special enquiry and the last one was in the seventies It showed that the FED is heavily controlled by European Banks families especially British and German interests.
It seems to me that if the feds purposefully "going for inflation" causing a drop in the dollar, the underyling reason would be to strengthen our economy through an increase in exports.
It is funny to see that 3 years ago, the FED and Greenspan goal was to stop the inflation with higher interest rate. A side effect of this politic have been to limit the stock market growth. Now the FED and and Greenspan goal is to drop the U$ even if this will create inflation...