Wednesday was an important news day: the U.S. Federal Reserve hiked rates by 0.25%, as had been widely expected. The surprise came in Chair Janet Yellen’s comments, in which her willingness to allow an annual inflation rate greater than 2% for some unspecified future period produced a widespread sale of the U.S. Dollar, with the market rightly seeing this as making the total rate raises over time most probably lower. The biggest gainer in the immediate aftermath was the Australian Dollar, which has been in place for some time as showing the greatest long-term strength of all the major currencies. Precious metals such as Gold and Silver also got a strong boost from the news.
There were also major central bank releases today from the Bank of England and the Bank of Japan. The Bank of Japan had little to say, but the Bank of England gave the Pound a minor boost when one of its committee members was revealed to have voted for a British rate hike.
In other news, yesterday’s election in the Netherlands produced a surprising result: the governing party not only won a plurality of Parliamentary seats, as had been predicted by the final polls, but did so considerably more convincingly than had been expected, with the highest total general election turnout in 31 years. Geert Wilders’ Party for Freedom barely managed second place, with only 20 seats, which was lower than expected – although it is still the second largest party. The Dutch political landscape now looks more fragmented than ever before, with a consensus among analysts that the Prime Minister must assemble a coalition of four parties to govern. The center-Left Labor Party, a mainstay of postwar Dutch politics, was reduced to an unprecedented 9 seats, with the more left-wing Green Left taking on the leadership of the left with major gains. We begin to see a pattern in western Europe of a movement further to the left, on the political left.
The Dutch result brought welcome relief to pro-EU forces, reeling from the victories for Brexit and Trump during 2016, as Wilders has not only been promising some radical measures on immigration, but also promoting the withdrawal of the Netherlands from the European Union. The fact that the victory was won with such a high turnout will be enormously cheering to the European political class. Interestingly, although this is good news for the Euro, it hasn’t showed any extraordinary strength since the result became known.
