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. Last Updated: 07/27/2016

Analysts: Election Jitters Boost Dollar

NEW YORK -- Uncertainty about the upcoming Russian presidential election could provide fresh fuel for the dollar's rally against the Deutsche mark if voters appear inclined to turn back the clock politically and economically to the Soviet era, experts said.

"It's yet another Deutsche-mark-negative [and] dollar-positive in a long list of those things and could really take us to the next level, into the mid- to high-1.50s," said Michael Perelstein, lead portfolio manager of MainStay international bond and equity funds.

An ailing German economy and belief that European monetary union could come in on schedule have already battered the mark this year, analysts said.

By contrast, the dollar has soared amid signs of solid job creation and the view that the U.S. Federal Reserve will either hold short-term interest rates steady or tighten credit later this year, they said.

The dollar had surged briefly Wednesday to a 14-month high of 1.5242 marks, representing about a 6 percent increase since the beginning of the year.

Last October, news that President Boris Yeltsin had been hospitalized briefly bolstered the dollar against the mark as investors deemed the U.S. unit a short-term safe haven given Germany's business ties and exposure to Russia.

Now investors are faced with the possibility that Yeltsin could lose the election June 16, perhaps to Communist Party leader Gennady Zyuganov, who has campaigned on a platform of nostalgia for Soviet days.

"There is a great possibility that somebody could get elected ... that'll overthrow a lot of the things that have been put into place by the Yeltsin government," said Francoise Soares-Kemp, a director at Swiss Bank Corp.

"The dollar can only benefit from this uncertainty," said Soares-Kemp, senior private banker at the firm.

Yet an opinion poll by The Moscow Times and CNN released Tuesday put Yeltsin ahead for the first time, with 20.7 percent of 1,201 poll participants backing Yeltsin compared with 19.8 percent for Zyuganov.

Some experts, however, questioned whether Yeltsin could hold on to that lead. "Yeltsin should do better right now because basically he's operating in the limelight of the G-7," said Perelstein, referring to a meeting of leaders of the Group of Seven leading industrialized nations on nuclear security held in Russia last weekend.

"The real question is three or four weeks from now when the G-7 spotlight is off of him whether he's still going to be ahead," Perelstein said.

Indeed, some analysts view the next three or four weeks as the time when any election jitters are most likely to bolster the dollar against the mark.

Michael Faust, a portfolio manager at Bailard, Biehl and Kaiser, does not expect the dollar to benefit that much from pre-election uncertainties. He contrasted the upcoming election with the unexpected Soviet coup attempt in August 1991, noting that the election lacked the element of surprise.

"Here, the market knows well in advance there is going to be an election," Faust said, adding that foreknowledge tends to dampen any influence the election might have on the dollar.