The result of the Dutch elections has brought relief to the financial markets in the eurozone. The parties that want to take the Netherlands out of the euro and even out of the European Union have scored considerably worse than expected on the basis of the polls.
The Netherlands was the center of attention on the eve of the elections, but also on election day itself, media from all over the world kept an eye on the Netherlands. The Dutch elections were the first in the eurozone and were seen as a benchmark for elections later this year in France and Germany. There are also parties in those countries that want to get the country out of the euro and/or the European Union.
If those parties would score well in the Netherlands, the predictions were that those parties could also finish high in France and Germany. The future of the euro could then become very uncertain. This could have major consequences for both the value of the common currency and interest rates in the eurozone.
Result causes EUR/USD rise
That political uncertainty came to an end last night, until the French elections in May. The two parties advocating the exit from the euro and the European Union, the PVV and newcomer Forum for Democracy, together received about 13 percent of the vote. That is a lot lower than previously predicted in the polls and a lot lower than what the parties had hoped for.
When it became clear that the PVV had scored much less well than expected and that Mark Rutte's party once again remained the largest, the EUR/USD rose sharply by 1 cent. That's a significant move in that market.
Decline in long-term interest rates
Long-term interest rates on the interest rate markets fell as a result of the election results. This happened not only in the Netherlands, but also in Germany, France and Italy. Investors seem to think that the results of the Dutch elections will slow down the rise in populism in euro countries.
That in turn means that it is more likely that the eurozone will not fall apart. This in turn means that the European Central Bank, among others, with its large-scale purchases of government bonds, will keep interest rates in countries such as France and Italy low.
Uncertainty will increase again
Political uncertainty in the eurozone will increase again in due course as the French Presidential elections approach. However, the result of the Dutch elections may mean that the uncertainty among investors is considerably less than in the past period.
Forecast EUR/USD
Yesterday evening, the Fed, the American central bank, also raised the official interest rate in America to 1 percent. As the US bank has left its plans for rate hikes unchanged later this year, the EUR/USD has also received a tailwind.
The EUR/USD may remain under slight upward pressure in the coming weeks. This is because the new interest rate hike in the US is not on the agenda for the time being. There is also the feeling that anti-euro forces, such as the PVV, are losing ground in the eurozone.
Interest rates will remain low for the time being. This is partly due to the disappearance of political risks and partly because the ECB continues to buy government bonds in the euro countries.
What the US central bank has in store for the rest of 2017 and how that could affect, among other things, the value of the EUR/USD, you will see in the interest rate video tomorrow.