The United States entered an election year. I’ll try to keep the debate focused on the impact on the economy and the dollar, without diving too deep into American politics.
The question for the dollar is the level of uncertainty. If the picture will clear up, this will help the dollar, while high uncertainty will weaken it.
On one hand, incumbent president Barack Obama wants more economic stimulus to boost the economy or please voters (depends on your point of view). His candidacy is secure as he is the only one running in the Democratic Party.
This analysis originally appears in the Forex Outlook for Q1 2012. You can download the full report for free by joining the mailing list in the form below.
The heat comes from the Republican side. The primary season began and might also see a clear winner in Q1. The leading candidate is Mitt Romney. He might provide strong pre-election rhetoric towards China and may be labeled as a conservative due to his Mormon religion affiliation. Yet the differences between him and the president on economic issues aren’t that great. Both support healthcare in some way or another, and both lean to the mainstream in regards to foreign policy, supporting banks, etc.
The candidacy of Romney is secured during Q1, especially on “Super Tuesday”. Romney seems to be working quite wisely, and has a lot of cash to spend. If he becomes the clear winner of the primaries during Q1, political uncertainty will take a break. Finding the differences between Obama and Romney will wait for Q3 and Q4.
Underdogs
Yet Romney is not alone. In Iowa, the race was practically tied with Rick Santorum. Santorum is a more conservative politician. His chances of beating Obama are small. If he emerges as the winner during March, this will clear the uncertainty. Yet Santorum doesn’t have the money to really beat Romney. If he gives up a good fight and the Republican candidacy question remains open, this uncertainty could weigh on the dollar.
The same goes for Newt Gingrich, who won a landslide victory in South Carolina. He is more resourceful than Santorum and has some chances of beating Romney. He seems more charismatic. Nevertheless, his problematic statements in the past and his not-so-conservative personal life leave him few chances against Obama.
Ron Paul, that came third, is by far the most fascinating candidate. His talk about the gold standard appeals to fiscal hawks, yet his rejection to the military gets him votes from the left.
Paul is in a weak position after three races, yet he might run as a third independent candidate. This is still an option. If Paul puts up a fight in the Republican race or hints towards running independently, the level of uncertainty will certainly rise. The media finds a hard time digesting Ron Paul.
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