The Rise of the Dollar on the Wings of Obama’s Victory

The dollar strengthened against the euro on international currency markets on Wednesday, after Democratic Party candidate Barack Obama secured a convincing victory in the U.S. presidential elections.

The euro weakened against the dollar by more than one percent by noon, sliding to 1.2840 dollars. An even larger decline, above two percent, was recorded against the yen, sinking to 126.40 yen. The dollar lost value against the yen by more than one percent, trading at 98.45 yen. After a loss in value on Tuesday, the dollar began to strengthen under the influence of a wave of buying triggered immediately after U.S. media announced that Obama had won the U.S. presidential elections.

"The dollar is on track to recover some of the lost value from Tuesday, and the result of the U.S. presidential elections has undoubtedly provided it with support," concluded Gary Thomson from CMC Markets, interpreting that the rise of the greenback rests on the swift announcement of results. Investors then redirected their attention to the global recession, which supported their aversion to risk and provided support for the yen as a low-risk currency. In contrast, higher-yielding currencies, such as the British pound, came under pressure.

The European Central Bank (ECB) and the British central Bank of England (BoE) are expected to significantly lower key interest rates in the eurozone and the UK on Thursday to dampen the slowdown of their economies. These expectations further pressured the euro and the pound on Wednesday. Predictions were further cemented by statements from ECB Executive Board member Juergen Stark that weaker growth in the eurozone and fluctuations in oil prices could temporarily result in negative inflation rates.

Recent data also showed a 1.6 percent year-on-year decline in eurozone retail sales in September, while the services sector purchasing managers’ index for the eurozone for October was revised down to 45.8 points, the lowest value in the past 10 years. Values below 50 points indicate a decline in activity. Among other currencies, the British pound stood out, weakening against the dollar by about one percent, sliding to 1.5800 dollars under the influence of heightened expectations that the BoE would cut interest rates by as much as one percentage point to support the faltering British economy.  (H)