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While making readings on economics I came across a sentence:

..large valuation gap that has opened up between US equities and the rest of the world. This could help bid up non-US equity valuations and place further downward pressure on the USD.

To my understanding, holding everything else equal, high stock prices of US corporate encourage investors to buy them, thus it should place upward pressure on the dollar. Why would the authors argue that the direction of pressure is down?

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  • $\begingroup$ Holding everything else truly equal, high prices discourage buying. $\endgroup$ – H2ONaCl Feb 23 at 3:23
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I think what your quote is trying to say is: Investors have bid up US stocks to the point where their valuation ratios (e.g. pe) are high relative to other countries. This could lead investors to rebalance in favor of other stocks. Hence the downward pressure on the dollar. Whether or not that argument makes sense is another questions (about which I have my doubts).

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  • $\begingroup$ If, however, investors would not rebalance in favor of other stocks. In this case, the pressure for the dollar would remain upward? $\endgroup$ – R_quester Feb 21 at 14:36

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