November 8 is far from being a date relevant exclusively for the US audience and political forces involved in the global game - it is likely to leave a mark on various economies and individuals all over the world with the currency markets being no exception.
Mexican Peso and Trump's Poll Results
© Dukascopy Bank SA
Theories on each candidate's impact on currency markets have experienced a sharp rise over the last few months. Analysts of Societe General claim Donald Trump's victory a threat to emerging market currencies, which stems from the protectionist policies put forward by the magnate. Some currencies, such as the Mexican Peso, show some correlation with polls, losing value when Trump scores in supporter estimates. Based on Donald Trump's clear stance against Mexico, it is no surprise that the currency has performed the worst out of all emerging market currencies, resulting in a 10% dip over the last seven months.
Mexican Peso and Trump's Media Coverage
© Dukascopy Bank SA
While some experts deny any correlation between market performance and elections, The Presidential Election Cycle Theory encourages traders to implement the election cycle in their trading strategies. The theory tries to establish a connection between the four-year presidential cycle and the performance of equities. Weak stock growth over the first year after the new country leader is elected means good news for the Dollar, while years three and four show strong stock growth after a gradual gain in year two. The theory, however, embodies several issues, a major one stemming from the lack of distinction between a first and second-term election. According to Mary Ann Bartels of Meryl Lynch, markets tend to perceive the known better than the unknown, meaning that a second-term nominee brings less stress than a first-term one.
The US Dollar during Obama's Election (November 4, 2008)
© Dukascopy Bank SA
A strong US Dollar has generally proven to go hand in hand with a Democratic nominee election, suggesting that a Hillary Clinton win might benefit the Dollar. Republicans retaining control over the Congress after the election of a Democratic candidate is expected to bring the most uncertainty and cause jumps in the Dollar value.
The US Dollar during Bush's Election (November 7, 2000)
© Dukascopy Bank SA
A nation led by Donald Trump could, of course, turn out to be a lot less disastrous than expected. The lack of clarity on the Republican nominee's proposed policies keeps an uncertainty factor in the markets. And out of all things markets hate – they hate uncertainty the most.