This article has been reviewed according to Science X's editorial process and policies. Editors have highlighted the following attributes while ensuring the content's credibility: Exchange rates are more than just abstract numbers. They determine the value of a Mexican peso, the cost of a German car in the U.S. and whether an Argentine farmer can repay his debts.
Jantke de Boer, junior professor of international monetary macroeconomics at Ruhr University Bochum, has examined how expectations of future protectionist measures influence exchange rates. The paper is published in the journal Emerging Markets Review. "Financial markets do not wait for a political decision to be implemented.
They try to anticipate future developments. If it seems more likely that the U.S. will impose higher tariffs in the future, this can immediately be reflected in the exchange rates," she explains. Several emerging countries are particularly negatively affected by this; their currencies depreciate more than others.
Ruhr University Bochum's science magazine Rubin provides a detailed article on the findings. In her studies, de Boer analyzed how announcements of protectionist measures in U.S. presidential debates affect exchange rates. To do so, the economist used live broadcasts of U.S. presidential debates from past years, which were always aired between 9 and 10:30 p.m. (Eastern time).
The short time window helps narrow the analysis, but the closure of major stock exchanges does not rule out other market-moving news or alternative explanations for exchange-rate movements.. At the same time, de Boer evaluated data from prediction markets in which people bet on the outcome of the election. "The betting odds show in real time how the assessment of a candidate's protectionist stance changes during the debate, and at the same time we can see how the foreign exchange market reacts to this," says de Boer.
Countries with close trade relations with the U.S. are especially affected. "The more heavily a country exports to the U.S., the more strongly its currency reacts," says de Boer. One example: Mexico, which is highly dependent on exports to the U.S., sees the value of the peso fall in response to protectionist announcements.
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