Important Links

Are US politics dampening the dollar?

13 October 2017FXUSAPolitics

Are US politics dampening the dollar?

  • In recent months, Citi analysts have noted the dollar losing some ground against other major currencies
  • Citi analysts believe that US politics and North Korea tensions could be causing doubt with investors

For some time Citi analysts have seen the USD (the US dollar) lose ground to other major currencies, including the EUR (Euro) and RMB (Chinese Renminbi)1, which they believe is partly due to continued political uncertainty. Despite a 12-year high in the ISM (Institute for Supply Management) non-manufacturing index and a surprisingly resilient ADP (Automatic Data Processing) employment report this September, today (October 2017) many investors remain apprehensive about the USD.

Citi analysts consider the upcoming US midterm elections important, and continued North Korean tensions will cause further concern for many. That said, research does show that political events rarely have any long-term effect on the dollar. A Citigold study suggests that the impact of similar political incidents on the economy has historically been limited to the short term.

Watching the midterm elections

The midterm elections have proved a particularly testing time for President Trump's party previously. Historically, the Republicans have lost seats in all but two of the last 20 midterm elections2, something investors will be watching with trepidation in January, Citi believe.

Should the Republicans suffer a major setback, or if Trump's approval ratings continue to fall as they have in recent months3, this could throw the USD into further disarray. The movements of Rex Tillerson and Janet Yellen may also play an important role, as uncertainty could be raised over US monetary policy should new appointments occur.

The Tillerson effect

Within the Trump administration, an exit from US Secretary of State Rex Tillerson could undermine the party's credibility. Though Tillerson has denied any truth in the rumoured resignation4, Citi analysts believe that the dollar may suffer as a result of his departure.

All eyes on Yellen

Another concern may be over who will act as chair of the US Federal Reserve System when Janet Yellen's term expires in January 2018. If not reinstated, the Obama-appointed Yellen would be the first chair since 1979 to not serve two terms. With trillions of assets being sold to stabilise the US economy, some in Wall Street are worried that changing heads midway through this process could cause upset to the markets5.

Worldwide tensions also hold risk

Strained relations between North Korea and the US may also increase uncertainty on the midterm elections, and Citi analysts believe this could dampen the dollar further.

North Korea's main ally, China, is focused on diffusing tension so conflict may seem unlikely6. Should any military action be taken, it could cause a surge in US debt, given the expense of waging war on foreign soil. If conflict occurred between North and South Korea, supply chains could also take a hit globally7 – with the latter being one of the world's largest exporters.

Will the dollar bounce back?

Though the USD's value may currently be affected by political tensions, in most cases, any immediate effect on the currency from a political event has remedied within 30 days (see Citi's study above). However, Citi advise that it's always smart to keep a diverse portfolio to minimise risk from political events.

Read how diversifying your portfolio in uncertain climates can help to limit risk, and remember that your Relationship Manager is always on hand for all concerns.









Our recent research

A Pandemic Pause Amidst the Recovery?

As individual States in the US emerge from the first-order effect of lockdowns, the result has been a uniform, major jump in economic activity, but an acceleration in the spread of the virus across half the country. Citi analysts expect financial market volatility to remain high. However, improving financial conditions, supportive macroeconomic policies, improving sentiment by consumers and business suggest that the new economic recovery could endure.

Find out more

Covid-19Asset AllocationEquities

Equity Strategies to Position for China's Aging Population

Population aging is often presented as a crisis for China. Instead, Citi analysts see immense opportunities amid the challenges.

Find out more

Asia PacEmerging MarketsEquities

Brexit negotiations in the limelight

The UK has 'left' the European Union, but with less than 200 days until the end of the one-year transition period, what happens next?

Watch a replay of our webinar where we discuss the likely path of the negotiations and the impact to the markets.

Find out more


Take the first steps to your wealth management planning with Citi

Speak to a Relationship Manager
0207 500 1992

Already with Citi? Contact your relationship manager or view product availability on Citi Online

Why choose Citi

A relationship - not just a bank account

A dedicated Relationship Manager giving you access to our internal team of product experts and all our benefits

Access to exclusive Citi products

A range of current and investment products available both on shore and offshore, in the currency of your choice
Multi-currency accounts
Investment products

Global services for a global lifestyle

Our team is here to support you getting started in UK or with International travel and relocation
Moving to and from the UK
Travelling overseas

Offshore investments

We offer a diverse range of banking and investment services, including for those who want access to offshore investments

Find out more

Just moved to the UK?

We can save you time money and hassle. If you are a foreign national in the UK, Citi's International Banking Service can help you manage your money, home and away.

Find out more

Investment products are not insured by any governmental agencies, are not bank deposits, and are neither obligations of, nor guaranteed by, Citigroup, or any of its affiliates, unless otherwise stated. Investment products are subject to investment risks, including possible loss of some or all of the principal amount invested. Past performance is not indicative of future results, investments can go down as well as up.

“Citi analysts” refers to investment professionals within Citi Research (“CR”), Citi Global Markets Inc. (“CGMI”) and voting members of the Citi Global Investment Committee. Citibank N.A. and its affiliates / subsidiaries provide no independent research or analysis in the substance or preparation of this document. The information on this page has been obtained from reports issued by CGMI. Such information is based on sources CGMI believes to be reliable. CGMI, however, does not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute CGMI’s judgment as of the date of this page and are subject to change without notice. This page is for general information purposes only and is not intended as a recommendation or an offer or solicitation for the purchase or sale of any security or currency. No part of this page may be reproduced in any manner without the written consent of Citibank N.A. Information on this page has been prepared without taking account of the objectives, financial situation, or needs of any particular investor. Any person considering an investment should consider the appropriateness of the investment having regard to their objectives, financial situation, or needs, and should seek independent advice on the suitability or otherwise of a particular investment. Citi Research (CR) is a division of Citigroup Global Markets Inc. (the "Firm"), which does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this information. Investors should consider this information as only a single factor in making their investment decision.

Opinions expressed herein may differ from the opinions expressed by other businesses or affiliates of Citigroup, Inc., and are not intended to be a forecast of future events, a guarantee of future results or investment advice, and are subject to change based on market and other conditions.