News from the financial markets

How the US President is affecting the dollar

Dr Thomas Gitzel, Chief Economist VP Bank
Reading time: 1 Min
Despite enormous power, the President of the United States can't influence the value of the dollar directly. However, with considerable budget deficits, he may manage to do just that.

With regard to the development of the US dollar, a cycle can be identified that lasts on average almost seven years. Although the US currency has not been following it quite so closely lately, it stands to reason that the presidential periods and which party was in power play an important role in this.

What is important is the way in which the state budget develops. A significant deficit in combination with a deficit in the current account, also known as a twin deficit, can become a burden for a currency.

The change in the twin deficit has roughly a two-year lead time on the development of the dollar. If the combined deficit in the current account and budget balance widens, the US dollar depreciates.

In view of the massive increase in government spending in connection with the corona pandemic, this argues in favour of a weaker dollar.

This is the abridged version of an article that appeared in the current issue of the investment magazine "Telescope". 

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