How Have US Elections Impacted the US Dollar?

The following article is an excerpt from our FREE US Election Guide that analyzes how US Presidential elections have historically impacted the US dollar, stock market, and gold. Please click the link above for more election analysis!

How Have US Elections Impacted the US Dollar?

In what will become a common refrain throughout this guide, it’s important to remember that politics alone are rarely a strong driver for currency values. The primary factors that drive the long-term trends in the US Dollar – things like interest rates, trade balances, and capital flows – are either entirely or mostly out of the control of the President.

With that caveat out of the way, there have been some notable small-sample tendencies in the performance of the US dollar depending on the political party of the US president over the past few decades. As the chart below shows, the US Dollar Index has shown a tendency to fall during Republican presidencies and rise during Democratic presidencies dating back to George H. W. Bush in 1988:

Source: StoneX. TradingView data. Past performance is no guarantee of future results.

As with any historical market data, changing the timeframe can change the conclusion; the greenback generally fell throughout Democratic President Jimmy Carter’s term from 1976-1980 and rose during Republican Ronald Reagan’s first term from 1980-1984 before reversing those gains in his second term.

Interestingly, a study titled “U.S. Presidential Cycles and the Foreign Exchange Market” in Review of Financial Economics found that there have been inter-term patterns depending on which party controls the White House. The study’s authors’ summary follows:

“We examine the association between the foreign exchange rate of the US dollar and US presidential cycles. Results show that Republican presidencies tend to start with a strong dollar, which then depreciates over the course of the presidency. In contrast, Democratic presidencies tend to begin with a weak dollar that then appreciates. These patterns result in an apparent presidential effect in US foreign exchange rates.”

Ultimately, these types of historical patterns can be useful, but only if they extend into the future. Without a clear causative explanation, readers may want to be skeptical about putting too much stock (no pun intended) into trading around them in isolation.

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