ABSTRACT This paper investigates how institutional quality shaped currency responses to the 2024 U.S. presidential election, using high‐frequency exchange rate data for 73 countries. We document that virtually all currencies depreciated against the U.S. dollar immediately following the election result, which markets had not anticipated. Surprisingly, countries with stronger institutional quality, typically considered more resilient, experienced larger and more persistent depreciations. We interpret this through the lens of a geopolitical realignment: the election marks a structural break in the U.S. role as guarantor of a rule‐based international order. Under the new administration's more transactional and bilateralist orientation, strong institutional alignment with liberal democratic norms may have increased perceived exposure to U.S. policy uncertainty. Our findings reveal how political regime shifts in leading economies can reconfigure the global distribution of financial risk premia.
Aizenman et al. (Sun,) studied this question.