The Trade-Weighted US Dollar Index published by the Fed has declined by around 27% since the introduction of flexible exchange rates in 1973. However‚ this index has risen in seven of the nine years in which a new president has been elected.

On 6 November 2012, the people of the United States will elect their country’s next president. In the run-up to polling day, the candidates will come up with new – or perhaps old – ideas for how to get the US economy running at full steam again over the next few years, and how they intend to boost the reputation of the US in the eyes of the rest of the world. The US dollar will be a beneficiary of this process.


The US dollar – an unloved child

Since 2002, the value of the dollar has headed in only one direction - south. The debt crisis in Europe has put a stop to this trend. The Americans are often accused of wanting to undermine the dollar on a systematic basis in order to achieve a competitive economic advantage, but in election years this does not appear to be the case. The US likes to shine the spotlight on its strengths in election years – and in the past the greenback has benefited accordingly.


More fiscal stimuli expected in election year

In 2012, the economy will be a decisive electoral factor. Both President Obama and his Republican challenger will therefore be determined to be seen as economy-friendly. For example, it is likely that both the employee payroll tax cut programme and the unemployment benefits extension programme will be prolonged to cover the whole of 2012. The Fed meanwhile has announced that it will take additional measures to support the economy if required. Moreover, the President of the New York Fed, Bill Dudley, has called for additional aid programmes for the housing market.


Dollar supported by fundamentals too

Economic developments also favour the dollar. While Europe is fighting to avoid being dragged back into recession, the US economy has put the weak phase of the summer behind it. True, there is no economic boom in the offing here, but the US is still likely to generate solid growth in the future. And slowly but surely, this is feeding through into the labour market. The unemployment rate has now fallen to 8.5%, much higher than before the financial crisis but lower than a year ago. Of course, there are clearly no grounds for euphoria: Further savings are required at municipal level in the public sector, the real estate market is still on its knees despite evidence of some green shoots, and America is not immune to the problems preoccupying Europe. There are a number of positive indicators, however. The corporate sector remains in robust health, consumers are still willing to spend, and – most importantly of all – interest rates are low and will stay that way. This stimulus for the economy should not be underestimated.

US dollar to remain strong

Although the dollar has appreciated significantly against the euro recently and is now overbought, it is likely to defend its current level over the next few months. We have therefore adjusted our short-term forecasts upwards.


Dr. Thomas Stucki is the CIO and a member of the senior management of Hyposwiss Private Bank. Mr. Stucki holds a doctorate degree in economics from the University of Bern and is a CFA Charterholder. He manages the Investment Center of Hyposwiss Private Bank with around 30 staff. Thomas Stucki is responsible for the asset allocation of client mandates of CHF 3.4 billion. In his previous job, he was Head of Asset Management at the Swiss National Bank.


Hyposwiss Private Bank Ltd.

Hyposwiss Private Bank is a Swiss private bank with 120 years experience. We offer our private customers a wide range of services in the areas of private asset planning and asset management. Specialised in individual asset management, we are the private banking competence centre of the St.Galler Kantonalbank Group. Hyposwiss Private Bank Ltd. currently has 162 staff and manages customer assets of 9.6 billion Swiss francs.