Euro Reaches One-Month High as Dutch Vote Shows Liberal Win

  • Shared currency extends gains made in wake of Fed decision
  • Outcome is worse than expected for Freedom Party’s Wilders

Dutch Liberals Deliver Clear Win Over Populist Movement

The euro traded just off the highest level in more than a month after an exit poll showed Dutch Prime Minister Mark Rutte’s Liberals easily beat the anti-Islam Freedom Party of Geert Wilders in Wednesday’s election, allaying concerns about the spread of populism in the currency bloc.

The shared currency had the biggest advance against the dollar since June on Wednesday, extending gains made after the Federal Reserve left its projections for interest-rate increases unchanged. The Liberal Party is projected to take 33 seats in the 150-seat lower house of parliament compared with 20 seats for the Freedom Party, with 93 percent of municipalities counted by the early hours of Thursday.

The outcome was a worse result than opinion polls had predicted for Wilders, a rejection of his platform of pulling the Netherlands out of the European Union. The Netherlands vote has drawn scrutiny as it comes before next month’s presidential election in France, where anti-euro candidate Marine Le Pen has vowed to take the nation out of the single currency.

“Following the Dutch election result, it’s unlikely to see concerns heighten over the French election,” says Shinichiro Kadota, a senior foreign-exchange strategist at Barclays Securities Japan Ltd. in Tokyo. “Exit polls showing the Dutch ruling party winning the election helped lift the euro amid dollar selling after the FOMC meeting.”

The euro traded at $1.0728 as of 12:27 p.m. Tokyo time Thursday, just off the $1.0746 level it reached late Wednesday, the highest since Feb. 7. The yield on France’s 10-year bonds fell five basis points to 1.04 percent earlier Wednesday.

Analysts’ reactions

  • The result should be a positive development for the euro as it clears one political hurdle and reduces the offsetting force of the political risk premia, Vasileios Gkionakis, a strategist at UniCredit AG, said in emailed comments
  • The Freedom Party’s tally in the exit poll is on the low side and this will be seen as reducing the risk premium attached to the risk of France leaving the euro zone, according to Sebastien Galy, director of foreign-exchange strategy at Deutsche Bank AG in New York
    • EUR/USD has a higher chance now of continuing toward the $1.10 region, according to Galy
  • Caution is required on outcome of Dutch election as a grand coalition is probably needed, meaning the possibility of political instability in the Netherlands, Naoto Ono, analyst at Ueda Harlow in Tokyo, writes in note
    • The impact to the French election should also be monitored; it’s dangerous to become too optimistic about the European situation
  • The markets are taking this as a euro-positive development, Valentin Marinov, head of G-10 FX research at Credit Agricole, said in emailed comments
    • Continuing unwinding of election risk hedges could see EUR/JPY and EUR/CHF supported as well

— With assistance by Chikako Mogi, and Daisuke Sakai

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