The following discussion is part of our complimentary US Election Guide, which provides an analytical look at the historical influence of US Presidential elections on the US dollar, stock market, and gold. For in-depth election analysis, please refer to the link above!
Impact of US Elections on the Value of the US Dollar
It is essential to recognize that while politics can influence economic sentiment, they are not the sole determinants of currency valuations. The long-term strength of the US dollar is primarily governed by factors such as interest rates, trade balances, and capital flows—elements that are largely beyond presidential control.
However, historical patterns reveal intriguing trends in the performance of the US dollar based on the political party of the sitting president. As illustrated in the chart below, the US Dollar Index has generally exhibited a tendency to decline during Republican administrations while showing gains during Democratic ones, a trend observed from the tenure of George H. W. Bush starting in 1988:
Source: StoneX. TradingView data. Past performance is no guarantee of future results.
It’s worth noting that varying the timeframe can yield different conclusions. For instance, during the Democratic presidency of Jimmy Carter from 1976 to 1980, the dollar generally weakened, while it appreciated during the initial term of Republican Ronald Reagan from 1980 to 1984, followed by a reversal during his second term.
A study titled “U.S. Presidential Cycles and the Foreign Exchange Market”, published in the Review of Financial Economics, explores these dynamics further. The authors summarize their findings as follows:
“Our research highlights the connection between the US dollar's exchange rate and presidential cycles, indicating that Republican presidencies often start with a robust dollar that tends to depreciate over time, while Democratic presidencies typically begin with a weaker dollar that subsequently appreciates. These patterns contribute to the perceived presidential effect on US foreign exchange rates.”
While these historical patterns can serve as insightful indicators, it is imperative to approach them with caution. Without a clear causal framework, there is little merit in making trading decisions solely based on these trends.
The following discussion is part of our complimentary US Election Guide, which provides an analytical look at the historical influence of US Presidential elections on the US dollar, stock market, and gold. For in-depth election analysis, please refer to the link above!
