U.S. presidential cycles and the foreign exchange market

Abstract

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, the direction of which depends on whether exchange rates are measured by levels or by returns.

Presidential Cycles in the USA and the Dollar-Pound Exchange Rate: Evidence from Over Two Centuries

“…The latter result, based on recent data, is in line with the findings of Ashour and Sarkar (2014), but contradicts those of Lobo and Tufte (1998). In sum, we conclude that Democratic regime have indeed depreciated the dollar historically, but in recent years (as well as in the early years of the dollar exchange rate), the inflationary and the higher stock return effects tend to cancel each other to result in an insignificant impact on the dollar.…”

“…Not surprisingly, the (limited) existing literature (see for example, Lobo and Tufte (1998), Chrétien and Coggins (2009), and Ashour and Sarkar (2014)) involving the impact of a Democratic or Republican government on the relative price of the U.S. dollar, provides mixed evidence. While Chrétien and Coggins (2009) indicates a depreciation in the values of the U.S. dollar relative to the Canadian dollar when the Republicans are in power, Ashour and Sarkar (2014) points towards no impact of the presidential cycles on the value of the dollar relative to the British pound, the Euro, and the Japanese Yen. Lobo and Tufte (1998), however had earlier indicated an improvement in the value of the dollar to the yen and the pound, but no impact on the same relative to the German Mark and the Canadian dollar, during the Republican regimes.…”