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Dutch Elections and FED interest rates: The aftermath

Sebastien Coignac-Smith - Dutch Elections and FED interest rates: The aftermath Written by
Sebastien Coignac-Smith
Currency Broker
T: +44 (0) 1442 892063

Bar a spike early on in the morning, yesterday’s London session was reasonably flat for GBP/EUR and Cable (GBP/USD) as the markets prepared for the Federal Reserve’s interest rate decision and accompanying press conference in the evening, and of course the result of the Dutch general election.

The initial spike you can see in the graph below demonstrates a strengthening of the pound as news broke that the potential second Scottish referendum being called by Nicola Sturgeon may not fall within the law. Add to this poll data supplied by The Times Scotland suggesting support to remain in the UK has in fact increased since the last vote, then you can see that a slight reduction in uncertainty surrounding the UK acted to add in the region of 0.5-1% value to the pound against its major counterparts. Lifting GBP/EUR to a session high of 1.1520, and a Cable to 1.2240.

GBP/EUR exchange rate graph

GBP/EUR exchange rate graph

GBP/USD exchange rate graph

GBP/USD exchange rate graph

The rest of the session saw small movements in GBP/EUR, never dropping below 1.1469, and Cable remained between 1.2181 and 1.2220.

The significant movement in Cable occurred in the evening as the US Federal Reserve interest rate decision and accompanying press conference took place. The decision itself to raise the borrowing interest rate by 0.25% to 0.75-1% was not a surprise as chair Janet Yellen had made little effort to disguise the inevitable hike off the back of strong US economic, and employment data. Stating “We have seen the economy progress over the last several months in exactly the way we anticipated”. Market participants were much more interested in what Yellen had to say regarding the future outlook of the economy and frequency of future hikes however, and despite saying “We have some confidence in the path the economy is on,” she did express that there will unlikely be an acceleration in the normalisation of monetary policy, and hikes will be “gradual”, not returning to neutral levels before the end of 2019. This disappointed market participants who were expecting 3 more rises throughout this year, not the 2 that is now likely. Causing a weakening of the USD, pushing Cable just shy of 1.23.

From Europe yesterday evening news broke from the Netherlands to strengthen the single currency. With the best voter turnout in for 30 years, right wing populist hopeful Geert Wilders was convincingly beaten into power by the more established parties, only winning 14% of the vote, with 80% of the population having made it to the booths. Prime Minister Mark Rutte declared it an “evening in which the Netherlands, after Brexit, after the American elections, said ‘stop’ to the wrong kind of populism.” This rejection of a divisive leader has been viewed as a barometer of the level of populist support throughout Europe. Politicians will hope it is a strong indicator in the run up to the French elections that their right wing hopeful Marine LePen may also fail to secure the necessary votes to deliver a strong challenge.

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With so many political uncertainties around the globe to try and keep track of, the potential for market volatility, and large rate swings is rife. To keep track of all these factors is almost impossible, and sudden movements are likely to be short lived. For these reasons it has almost never been as imperative to have some support in your corner, and that is exactly what we are here for. Once you have made contact with Foremost Currency Group, you will be assigned a dedicated account manager to assist you through the entire process. Your contact will take the time to understand your requirements, your time frame, and your appetite for risk, to then discuss the range of contract types available before suggesting a bespoke strategy tailored to your individual needs.

Today’s Data

There are a couple of data points of interest today. At 1000 we have European inflation figures, then at midday we have the Bank of England interest rate decision. The latter is a foregone conclusion, however the accompanying meeting minutes will be scrutinised by investors in hope of any indication as to the mind-set for future rate movements. This will shortly be followed at 1230 by Housing starts, initial jobless claims, and the Philadelphia Fed manufacturing survey, all from the US.

Sebastien Coignac-Smith
Currency Broker
T: +44 (0) 1442 892063

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