The presidential election cycle theory examines the connection between the US presidential election, which is held every four years and patterns in the financial markets.
An examination of the association between US exchange rates and presidential cycles indicates a significant economic and statistical relationship. Research suggests the US dollar has shown greater gains when a Democratic president holds the highest office compared with a Republican White House.*
The researchers found the US dollar appreciated during the term of a Democratic president but depreciated over the four-year term of a Republican president. This conclusion was based on a review of the years 1957-2016, using the exchange rate of the US dollar against several major currencies.
One explanation of this phenomenon is that Democratic presidents often implement policies that stimulate short-term economic growth and higher consumption, which causes the US dollar to appreciate. A Republican administration, however, is usually identified with a pro-business agenda, which may result in a weaker dollar. President Donald Trump has often said that he wants to see a lower US dollar in order to make US exports more competitive and has not hesitated to criticise the Federal Reserve for not reducing interest rates, which would cause the greenback to depreciate.