October is a critical month for the US Presidential Elections. In general, Obama can lose the presidency because of the state of the economy, although it is debatable how much he is to blame. However, challenger Romney isn’t as charismatic as Obama and appeals to less Americans than the president.
Now, the question is: how do the elections affect the dollar?
What’s more important than the person in the White House is the overall picture: if the president has control over both the Senate and the House, there is a better chance to do something. As we’ve seen in the past year and a half, a Republican House and a Democratic Senate and White House didn’t work well together.
During October, it will be hard to get the full picture through the polls. In addition, there is wide notion that no change will be seen in the chambers.
The polls can predict the situation regarding the presidency. Generally speaking, markets prefer a Republican in the White House, as such a president would be more pro-market than a Democrat one. History shows a mixed record with presidents on both sides, but the short term reactions to debates and polls shift currencies, and that’s what matters for now.
So, a higher chance of Obama winning will have a negative impact on stock markets and a positive effect on the US dollar. Better prospects for Romney will boost stock markets and weaken the dollar.
Looking at presidents in the near and distant past, there is clear correlation between the party and the state of the dollar: the dollar performs better under democrats than under Republicans. This is valid when comparing Obama and his predecessor George W. Bush. But yet again, in the scope of the polls, the immediate market reaction will be different.
So, significant polls favoring Romney could weaken the dollar, while those favoring Obama will strengthen it.
This article is part of the October monthly forex outlook. You can download the full report, including the currency technical outlooks and the relative strength index by joining the newsletter in the form below.