The Euro US Dollar (EUR USD) exchange rate continued its downtrend this morning as market concerns grew ahead of tomorrow’s Dutch election.
As the Dutch electorate prepares to go to the polls tomorrow, investors have their eye on one man in particular, the leader of the far-right PVV Freedom Party, Geert Wilders.
While Wilders has been a staple of fringe politics in the Netherlands for years now, the recent rise of populism in Europe has thrust him and his Eurosceptic policies into the mainstream, positioning him as the main rival against the current Prime Minister Mark Rutte.
Wilders has been vocal in his belief that the Netherlands should follow in the UK’s footsteps and split from the European Union and has pledged to follow through with a so-called ‘Nexit’ if he is elected, a prospect most EUR investors find deeply unsettling.
Wilders said in a debate with Rutte on Monday;
‘Nexit is the best thing that can happen to us. We will be in charge of our own country, we will have the key to our own front door again.’
Market concerns have grown in the last few days as the recent political spat with Turkish President Recep Tayyip Erdogan, and subsequent Turkish unrest in Rotterdam helped to bolster support for populist parties, with some polls now suggesting his party could win the highest percentage of the vote.
While most observers do not believe that he will be able to form a government, with the proportional representation system and most parties’ refusal to work with him making it almost impossible, a strong performance could help embolden other populist movements across the Eurozone, pressuring the Euro.
However despite the threat of populism economists appear to remain confident in the Eurozone’s economic outlook.
ZEW’s latest Eurozone Economic Sentiment Index soared in March, rising from 17.1 to 25.6, easily outpacing expectations that it would only reach 19.3 as analysts remain confident that the Eurozone economy will continue to perform strongly over the next six months.
Meanwhile the US Dollar continues to strengthen ahead of the Federal Reserve’s two-day policy meeting, which begins later this afternoon.
It is widely predicted that Fed policymakers will vote to kick off the first of three forecast US interest rates hike this year, with CME Group’s FedWatch Tool currently placing the odds of a March rate hike at over 90%.
Markets are hopeful that the unexpectedly early start to rate hikes this year could prompt the Fed to accelerate the pace of hikes, possibly leading to more than the three initially predicted in December.
Looking ahead the Dutch elections will likely dominate EUR USD market movements tomorrow as investors attempt to gauge how well Geert Wilders will perform.
However the Euro could also find momentum from the latest Eurozone labour figures, with an uptick in the fourth quarter Employment report likely to push the single currency slightly higher.
The big US news will of course be the Fed’s rate decision tomorrow evening, with US Dollar highly likely to rise if the central bank raise rates as predicted.
USD investors will be keen to hear from Fed Chair Janet Yellen as they hope for some indication of at what pace the Bank will continue tightening monetary policy, with a more hawkish tone likely to cause the ‘Greenback’ to soar.
Current Interbank Exchange Rates
At the time of writing the EUR USD exchange rate was trending around 1.06 and the USD EUR exchange rate was trending around 0.93.
