The Greenback (USD) Predictably Falls after Obama Re-Election

on Nov 7, 2012

As expected, the US dollar lost ground against other majors following President Barak Obama’s re-election for a second term, with the victory seen as ensuring that the Federal Reserve’s quantitative easing will stay in place.

**Obama’s Re-Election Pushes the US Dollar Down**
Reuters reports that following the news about the President’s re-election, the US dollar lost 0.3 percent against a basket of currencies. The greenback declined 0.3 percent versus the yen, whereas the euro advanced 0.4 percent against the dollar. “There had been some concern in the run-up to the election that a Romney victory would translate to premature monetary (and fiscal) tightening, so today’s outcome should reinforce expectations for easy policy to be in place for longer,” Citi analysts pointed out, as quoted by Reuters.

!m[](/uploads/story/743/thumbs/pic1_inline.png)The Republican Party nominee Mitt Romney had voiced his disagreement with the Fed’s easing measures and had indicated that he would replace the Fed Chairman Ben Bernanke at the end of his term in January 2014.
“Monetary policy will remain loose under Obama so the dollar will be sold,” noted Michiyoshi Kato, senior vice president of foreign-currency sales at Mizuho Corporate Bank Ltd, as quoted by Bloomberg.

The dollar also lost ground against its Australian counterpart, with the Aussie extending gains after the Bank of Australia surprisingly refrained from cutting its benchmark interest rate.
**The Greenback Could Resume Uptrend**
Analysts, however, seem to agree that the impact of President Obama’s re-election on the dollar will be short-lived, particularly as regards the euro, with Spain and Greece-related concerns weighing on the single currency.

The greenback is seen as likely to resume its uptrend soon, if safe-haven flows are prompted by growing worries over the looming “fiscal cliff,” given that the Republicans have control of the House of Representatives, which could complicate the fiscal cliff negotiations. “In view of the proximity of the fiscal cliff it is unlikely that this morning’s ‘risk on’ mood will gain a great deal of traction,” noted Rabobank’s currency strategist Jane Foley, as quoted by the Financial Times.


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