The U.S. dollar weakened Tuesday night when President Barack Obama’s re-election was called victorious by several television news networks. Under continued Obama leadership, economists speculate U.S. currency will continue to weaken as monetary stimulus policies continue. The dollar’s loss reversed earlier gains against the euro, and the Australian dollar jumped for a third consecutive day. Asian stocks also increased.
“Monetary policy will remain loose under Obama so the dollar will be sold,” Michiyoshi Kato, senior vice president of foreign-currency sales in Tokyo at Mizuho Corporate Bank Ltd., told Bloomberg. “Dollar selling may not last that long as the U.S. faces the fiscal cliff.”
Obama’s contender, presidential hopeful Republican Mitt Romney, did not support the Fed’s economic stimulus measures and planned to oust Fed Chairman Ben Bernanke at the end of his current term in January 2014.
The President, on the other hand, supports the Fed’s quantitative easing policy, which includes both $2.3 trillion in purchased mortgage related bonds and Treasuries, as well as an additional $40 billion in mortgage-backed securities each month until the economy gains sustainable traction.
“Obama’s re-election is likely to boost expectations of continued easing by the Fed,” Junya Tanase, chief currency strategist at JPMorgan Chase & Co. in Tokyo, told Bloomberg. “If it leads to lower U.S. yields and higher stock prices, the bias will be for the dollar-yen to fall.”
Early-Wednesday projections also indicate the Democrats will retain control of the Senate while the Republicans will remain the majority party in the House of Representatives. If Washington continues its inclination toward nonpartisanship, the resulting political standstill diminishes the odds of a fastidious “fiscal cliff’ resolution.
“After the election, the market will likely shift its focus to the fiscal cliff. It’s not clear what Obama can achieve (to reduce the impact of the fiscal cliff,” Tunase told Reuters.
In fact, if legislators are unable to reach a compromise concerning the $600 billion in government spending cuts and tax increases set to take effect in 2013, some analysts fear a political deadlock could result into an additional downgrade in the U.S. credit rating.
“With respect to the fiscal cliff, the chance of getting that resolved before year’s end has diminished somewhat, compared to what it would have been if Romney had won,” Tatsushi Maeno, head investor at PineBridge Investments Japan Co., told Bloomberg.
According to Bloomberg, the S&P 500 index has risen an average of almost 1 percent during each presidential election day since 1984. The index has seen gains on the day after the election, however, only twice during the same period. In fact, according to Bespoke Investment Group, the S&P 500 has fallen almost a full percentage point on the day following the election. On Nov. 6 S&P 500 futures fell a full 6.7 points, the Dow Jones industrial average lost 50 points and Nasdaq futures fell 8.76 points.
“Arguably investors did not factor the risk of an Obama victory sufficiently, as his re-election has raised the probability that sequestration will go into effect,” Andrew Swan, head of Asian fundamental equities at BlackRock Inc., wrote. “Given the political deadlock in Washington DC, with a Democratic president and Senate and a Republican Congress, a compromise on these spending cuts may be difficult to negotiate.”
