Euro under pressure as it DIPS amid Dutch election uncertainty

THE day of the Dutch election has dawned, and if the results of the latest polls prove accurate the euro could climb on the outcome.

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The euro dipped -0.4 per cent against the pound on the Wednesday

On Wednesday the euro dipped -0.4 per cent against the pound to trade at £0.869 but was holding steady against the US dollar at $1.063.

In the build up to the Dutch election the euro has come under pressure as a result of fears that anti-EU and anti-Islamic Freedom Party candidate Geert Wilders could emerge triumphant, potentially paving the way for more far-right victories in other European nations.

However, the latest poll from I&O Research gave Wilders 16 seats in the lower house of parliament, a small proportion of the 150 total seats and down from an estimate of 20 seats the day before.

This put the Freedom Party fifth. Polls will close at 8pm GMT, but with no party expected to take a majority of the seats and a coalition potentially taking months to form, the outcome is likely to be uncertain. 

As few of the other front-running parties would consider forming a coalition with Wilders, a surprising win could extend how long it takes for a government to be formed in the Netherlands – an outcome which could send the euro lower.

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Fears that candidate Geert Wilders could win has put the euro under pressure ahead of the election

That being said, if Wilders takes less than 20 seats it could ease some of the political uncertainty and give the euro a modest boost against currencies like the pound and US dollar.

When asked what he expected the outcome of the election to be, Wilders said only that we will have to ‘wait and see’ but he implied that the ‘patriotic revolution’ will continue even if he fails to gain the support he needs at this vote.

Although the Dutch election result is unlikely to have as much impact on the future stability of the Eurozone as the elections due to be held in France and Germany later in the year, a defeat for the far-right on this occasion would bolster hopes that we might see fewer destabilising political shocks this year than in 2016.

Mark Rutte urges Dutch voters to not support Geert Wilders

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The Federal Reserve’s upcoming interest rate decision could also lead to euro movement

Euro movement could also occur today as a result of the Federal Reserve’s upcoming interest rate decision.

The Fed is expected to increase borrowing costs this evening, but as the move has been so long expected it may have little immediate impact on the currency market.

The US dollar is only likely to make a move higher, potentially weakening the euro in the process, if the US central bank offers any indication of when borrowing costs could be adjusted again.

If the Fed implies that rates could be increased further as soon as May the US dollar is likely to climb.

TorFX
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