Elections and the U.S. dollar: 1973 to 2003

To see how the Fed’s U.S. dollar index has fared around elections from August 1973 to January 2004, we measured its performance in six periods both before and after each election day. We tracked the gain or loss from the 60th and 40th days before election day to the day before it. We also measured
the dollar’s price moves from the preceding 20th, 15th, 10th and fifth day prior to each election to the day immediately before it. To gauge how the U.S. dollar performed after elections, we then studied its behavior from the day before the event to the fifth, 10th, 15th, 20th, 40th and 60th days after it.
It shows each election date over the past 31 years as well as the U.S. dollar’s individual gains and losses in the 12 periods surrounding it. For example, “Day -40 to Day -1” measures the dollar’s change from the 40th day preceding the election to the day before it; “Day -1 to Day 40” represents its gain or loss from the prior day to the 40th day following it. (Day 1 is election day.)

The table’s final rows show the dollar’s average, median and benchmark performance, or typical same-length performance since 1973. Each period’s probability of gains is also shown The dollar lost an average -0.95 percent in the 60 days before the election and nearly as much in the prior 40-day
period. These losses faded in the month preceding election day and it gained roughly 0.22 percent in the 15- and 10-day periods.

While the dollar lost an average -0.05 percent on election day (not shown), the index rose 0.10 percent by the end of the first week after it. Also, by the end of the 20th day, or a month after the election, the dollar climbed 0.21 percent. Although the dollar then fell -0.25 percent by the 40th day, it rebounded in
the third month.

Comparing the table’s average and median values reveals a more accurate picture of the dollar’s typical price moves. For example, the -0.95-percent average loss in the 60 days leading up
to the election was likely skewed lower by a few unusually large losses, such as the -7.59-percent sell-off in 1998, since its median value was flat. However, the -0.81-percent drop in the 40-day period is supported by the similar decline in the median value. Also, the aforementioned -0.25-percent average
move from Day -1 to Day 40 is countered by a 0.13-percent median increase for that period. (For more
information about discrepancies between average and median values, see “Average and Median,” p. 35.) It also shows the dollar has welcomed decisive presidential victories. The index has gained at least 1.62 percent by the 60th day after five of the table’s seven presidential elections. The years in which the dollar didn’t perform as well in this period represent close elections.

For example, the disputed 2000 election between Al Gore and George W. Bush led to a -2.32-percent decline, and Jimmy Carter’s fairly narrow victory over Gerald Ford in 1976 boosted the dollar only 0.76 percent by the end of the analysis window. Since neither John Kerry nor George W. Bush command a significant lead immediately before the 2004 election, the dollar may not rally as expected.