USD Analysis: On the weekly chart, the USD Index appears to be finding favorable support, with the MACD double line and energy bar forming a bullish crossover below the zero axis. Over the past 20 years, the USD Index has performed better under Democratic presidents, while under Republican leadership, it has shown negative returns. However, just as with U.S. stock indices, it is crucial not to oversimplify this trend. The U.S. dollar is a global reserve currency and is influenced by many factors beyond presidential policies.

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TMGM: The Impact of U.S. Elections on the U.S. Dollar from a Historical Perspective

 

During U.S. elections, financial markets are often perceived as unstable and unpredictable, as investors weigh potential significant policy changes and economic uncertainty. However, history shows that U.S. elections have not led to any abnormal performance in financial markets. Overall, the U.S. stock market tends to become more volatile in the lead-up to elections. The value of the U.S. dollar is influenced by domestic and international perceptions of the economic policies of the presidential candidates. The relationship between the president’s party affiliation and economic growth has been a topic of extensive research and debate. Historically, some studies have indicated a correlation between the ruling party and economic performance. For instance, post-World War II data often show that the U.S. economy has grown faster under Democratic presidents than under Republican ones. However, this correlation does not necessarily imply causation.

 

TMGM analysts suggest that economic growth is a function of numerous variables, including global economic conditions, technological advancements, fiscal and monetary policies, and unforeseeable events like natural disasters or pandemics. Therefore, attributing economic performance solely to the president's party affiliation can be overly simplistic and potentially misleading. In fact, the legislative branch also plays a crucial role in shaping economic policy. A president’s ability to implement their economic agenda often depends on the composition of Congress. For example, a divided government may make it difficult for a president to pass significant economic reforms, regardless of their party affiliation. That said, it is commonly believed that Democratic administrations tend to focus more on fiscal stimulus and social welfare programs, which can boost consumer spending and short-term economic growth. On the other hand, Republican administrations often emphasize tax cuts and deregulation, which can stimulate business investment and support long-term economic growth.

 

Regardless of who takes office, both good and bad things are bound to happen. Frankly, sometimes the president's economic performance comes down to sheer luck. TMGM analysts point out that, for example, Obama took office when the U.S. economy was just recovering from the 2007-2008 financial crisis, whereas Trump faced less fortunate circumstances, with the unprecedented COVID-19 crisis occurring in the final year of his presidency. Overall, based on historical macroeconomic indicators, no clear conclusion can be drawn as to which president is more beneficial to the economy.

 

The U.S. dollar’s performance in an election year is influenced by domestic and international perceptions of the candidates’ economic policies. A candidate perceived as fiscally conservative may strengthen the dollar, as markets expect reduced government spending and lower inflation. Conversely, a candidate supporting expansionary fiscal policies may weaken the U.S. dollar due to concerns over rising debt. Trade policy is another key factor. A candidate with protectionist views may introduce tariffs or renegotiate trade agreements, which could affect the dollar’s value. Protectionist policies might lead to a short-term strengthening of the dollar due to reduced imports but could also result in retaliatory measures from trade partners, potentially weakening the dollar in the long term.

 

Geopolitical stability and foreign relations are other factors that could affect the dollar during an election. A candidate seen as more stable and predictable in foreign policy might boost investor confidence, leading to a stronger dollar. Conversely, if a candidate’s policies are viewed as potentially destabilizing, the dollar could weaken as investors seek alternative assets.