How Will Obama's Victory Affect the Dollar?

Barack Hussein Obama is the 44th President of the United States, the first African American and the second youngest President.

In reaction to his election, the US dollar is marginally higher and the US stock market has opened lower. Regardless of the overwhelming support for Obama domestically and internationally, the equity markets tends to sell off when Republicans lose the election.

The only minor negative is that the Democrats did not secure the 60 seat majority that is needed to push reforms through easier.

In the long run however, the dollar should rally as a new President takes the helm. If history is a reliable leading indicator, over the next 6 months, the US dollar should appreciate against the Euro and the Japanese Yen. We saw this in 6 out of the last 7 elections.

However this economic environment, the possibility of protectionist policies by Obama and the likely increase in the US budget could also hurt the dollar.

Comments

[Asbytec:]

Obama may have positive influence on the dollar if he can get china to reciprocate trade and if the US economy can be seen to recover from recession first.

2008 Nov 06 09:02 AM

[stocker:]

Really, the Euro rallied after 6 of the last 7 elections? The Euro began trading in 1999. My math is not that great but IT DID NOT EXIST IN 5 OF THE LAST 7 ELECTIONS.

2008 Nov 06 10:09 AM

[NOWHEREMAN:]

China's currency has appreciated with the dollar, if it doesn't decouple, they will have real problems exporting to the rest of the world let alone the US.

Meanwhile, the world's largest exporter has seen a 20% plus increase in its advantage due the decrease in the Euro. No not Japan or China, Germany.

2008 Nov 06 10:48 AM

[Jim Hawthorne:]

Stoker, you need to re-read the article...
Kathy is calling for a possible $ rally vis a vis other major currencies.
Do a little nuance!

2008 Nov 10 12:03 PM

[Asbytec:]

Well, technically, she did imply it rallied against the non existent euro in 6 of 7 past elections.

But, and this is important, I think we're all grown enough to understand what she meant, aren't we? And we can forgive her, no?

So, more to the real point, do you think she's correct? I do.

So, Paul, if China doesn't decouple? I suppose you mean decouple it's currency from the dollar peg. If it did that, the Yuan would appreciate markedly and trade would fall off, not improve. Decoupling would usher in the trade problems.

It's the peg, the coupling, that keeps their prices low in foreign currency terms. And, it's how they manage to hoard trillions of US dollars, by pegging the yuan to a depreciating dollar. They have been buying dollars and replacing them with yuan, not repatriating dollars through fair trade. Hence, the trade deficits we've been hearing about for decades.

Apparently, Obama is the next person in line to be told, "no" when he presses china on the fair trade issue. We tend to forget China is a command economy with a free market interface and has become a major lender on the global scene as a result.

But, China is (or was) very slowly, and maybe wisely, allowing it's currency to appreciate. I imagine they can only import so much US inflation.

2008 Nov 21 01:57 AM