Some election results are expected, and some come as a surprise. As people and markets adjust their expectations for the future with this new information, some financial variables may move around quite a bit.
The graph refers to two recent elections whose actual outcomes didn’t match forecasters’ expected outcomes: the British referendum vote on whether to stay in the European Union (a.k.a. Brexit) on June 23, 2016, and the recent U.S. presidential election on November 8, 2016. The red line shows the British pound per dollar exchange rate, and the blue line shows the Mexican peso per dollar exchange rate. Each series is centered on its respective election and indexed to 100 at the date of that election. (The interruptions in the lines show when markets were closed.)
In both cases, the value of the dollar relative to these currencies appreciated around 10% from the previous day’s value. This appreciation may reflect a negative (or less positive) revision to individuals’ expectations about the future of the British and Mexican economies based on the election outcomes.
How this graph was created: From the FRED homepage, search for and select the series “Mexico/U.S. Foreign Exchange Rate.” Then use the “Add Line” feature to search for and select “U.K./U.S. Foreign Exchange Rate” and add the series in dollars per British pound. To achieve a pounds-per-dollar series, under “Edit Line,” use the customize data section and type 100/a*100 in the formula box and click “Apply.” Finally. adjust the units of both series by selecting the “Index” option in the “Units” menu. Choose a custom date of 2016-06-23 for the pound and 2016-11-08 for the peso. Select the option to display integer periods instead of dates, and set the range to be -20 to 20 for all series.
Suggested by Max Dvorkin and Hannah Shell.
