NEW YORK (Reuters) - Currency investors are not particularly enamored with either of the two U.S. presidential candidates but they are more than ready for change after the U.S. dollar’s 33.8 percent decline under President George W. Bush.
Bush has presided over the worst drop in the dollar of any U.S. President since the developed world moved to flexible exchange rates in the early 1970’s.
And though analysts are not completely blaming Bush for the dollar’s slump, they say neither Republican Senator John McCain or Democrat Barack Obama can do any worse.
“One would think that just about anyone would be an economic improvement on one of the most reckless fiscal presidents we’ve ever elected,” said Chip Hanlon, president of Delta Global Advisors, Inc. in Huntington Beach, California.
The New York Board of Trade’s dollar index, which measures the dollar against a basket of six currencies, has lost 33.8 percent since Bush first took the oath of office on January 20, 2001. From a peak in July, 2001, the slide is even more dramatic at 39.3 percent.
Based on the dollar’s performance, Craig H. Russell, Beijing-based chief market strategist for China at Saxo Bank, says the Bush presidency has been more unpopular than the era of President Richard Nixon, who eventually resigned the White House in disgrace after being implicated in the Watergate scandal.
Nixon closed the so-called gold window on August 15, 1971, effectively ending the dollar’s ties to gold prices and the system of fixed exchange rates in place since World War Two.
From that point to his resignation on August 8, 1974, the dollar fell 13.7 percent.
Like Chip Hanlon, Russell is also looking for a dollar rally with the change in administration.
“We look at the dollar as a brand and any change from Bush will help benefit the dollar,” said Russell.
Some of the disillusionment with Bush, analysts say, stems from today’s economic environment being eerily similar to that of 35 years ago, with inflation and high energy costs threatening to derail growth.
The George W. Bush administration has also added to the mix by squandering a government budget surplus from his first year in office, and then running continuous deficits to fund in part, unpopular wars in Iraq and Afghanistan.
The Bush administration on Monday cut its budget deficit forecast for the current year but expanded it to a record $482 billion for 2009 as the weakening U.S. economy slows revenues and spending on two wars, an economic stimulus package, and a housing market package remains high.
However, most foreign exchange analysts believe the dollar index has reached a multi-year low, 70.698 on March 17, and while it may be all up hill, the index will slowly gain from its current 73.370.
However, the seeds of much of the coming dollar rally have been sown recently under the Bush administration.
Measures include tax rebates, a Federal Reserve brokered takeover by J.P. Morgan Chase of failed Bear Stearns, and the U.S. Treasury offering a financial lifeline to mortgage giants Fannie Mae and Freddie Mac to help save the housing market.
“Even though the new administration will be credited for the gains in the dollar, they are not the reason why the dollar will rally,” said Kathy Lien, chief strategist, DailyFX.com.
“The measures taken by the Bush Administration, which includes (Ben) Bernanke and (Henry) Paulson, towards the end of this administration will provide a big boost for the U.S. dollar over the next two years. The new president will reap the benefits of their work.”
Still, none of that will help the legacy of George W. Bush. No other U.S. president has come close to seeing the same magnitude of dollar declines.
The dollar bounced back 4.1 percent under the administration of Gerald Ford, who stepped up after Nixon resigned, before falling 13.3 percent during the four-year term of Jimmy Carter in the late 1970’s.
During Ronald Reagan’s eight year term, the dollar gained 4.8 percent, which was then all but wiped out by the 4 percent decline under the administration of George H. Bush.
President Bill Clinton’s eight year term coincided with a 20.3 percent gain in the dollar, but the greenback benefited from a drop in U.S. defense spending as the cold war ended.
Now, fast-forward to the election year of 2008 and investors are hoping for the best.
“Unfortunately, neither candidate for the White House offers a sure thing when it comes to a return to our country’s fiscal senses,” said Delta’s Hanlon.
Reporting by Nick Olivari
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