No Trump style surprise in Holland as euro rallies

The big winner of the Dutch election was current Prime Minister Mark Rutte, who easily beat off rival Geert Wilders of the far-right PVV party.  This vote was considered a key litmus test for elections across the rest of Europe, and some of the boost to the euro is likely to come from expectations that the French will do the same as the Dutch and reject their own Far-Right candidate.

Marine Le Pen seeing a retreat in support

With one month to go until the first round of voting in the French Presidential election, Front National’s Marine Le Pen has seen her odds of winning the election fall, after peaking at the end of February. She now has a 29% chance of winning, compared to 35% on 24^th February. Centrist candidate Emmanuel Macron has seen his odds soar to nearly 60%. Of course polls and odds can be misleading, but the Dutch election is likely to embolden Macron’s campaign as well as reduce any political risk premium building up in the single currency.

European markets take a breather after Wilders’ loss

While the rise in the euro is also due to the decline in the buck after the FOMC dot plot suggested two more rate hikes from the Federal Reserve this year, we would expect the French – German yield spread to narrow further in trading on Thursday, as the bond market takes a sigh of relief that there was no Trump-style shock in the Dutch elections.  This is also evident in stock markets with futures pricing in a positive open for Europe and the US.

FOMC boost to stocks

The BOJ meeting was uneventful, policy was left unchanged and Governor Kuroda said that economic risks are tilted to the downside, suggesting that stimulus is hear to stay. This hasn’t been enough to boost USD/JPY, which fell to a fresh post-FOMC low after dropping 150 points since the Fed decision on Wednesday.

Overall, the dollar is stabilising at low levels in the wake of the Fed meeting, which should continue to mildly boost US equity markets. Expectations for a rate hike in June have fallen from above 50% to 44%; this has weighed on bond yields, and with the 10-year falling below 2.5% overnight it doesn’t bode well for a recovery in the buck today.