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Dutch Election Result Prompts Decline in GBP EUR, Will BoE Rate Decision drive it Even Lower?

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The GBP EUR exchange rate slumped overnight on Wednesday as markets were pleased by the outcome of the Dutch elections.

Geert Wilders’ far-right Freedom Party was thoroughly trumped by Prime Minister Mark Rutte’s liberal VVD party during yesterday’s election as the Dutch electorate overwhelming voted to reject Wilders’ populist policies, strengthening the Euro after weeks of uncertainty.

Markets were unsettled by Wilders ahead of the election, with his campaign focusing on immigration and the exiting of the EU, while polls suggesting that he could claim victory in one of the closest run elections in memory.

The rejection of populism in the Netherlands is also expected to hinder the chances of Marine Le Pen in the upcoming French election as her Eurosceptic National Front Party is running on a similar set of policies.

Anna Stupnytska, Global Economist at Fidelity International said;

‘This vote is a signal on France, the high turnout and rally around towards the mainstream centre look bad for her [Le Pen]… As such, the Dutch result may be remembered as the turning point in the popularity of populism for 2017.’

However Rutte still faces the challenge of forming a new coalition which could take weeks as he enters negotiations with at least three other parties in order reach the majority required to form a government, leading to some uncertainty for EUR investors.

Meanwhile the Pound is on the back foot ahead of this afternoon’s Bank of England (BoE) policy meeting as economists predict that policy makers will vote to leave interest rates unchanged at a record low of 0.25%.

BoE Governor Mark Carney is expected to strike a dovish tone once again during his post-meeting statement, rejecting calls to hike rates after the recent uptick in inflation as he leaves the bank’s monetary policy flexible in the face of Brexit uncertainty.

Meanwhile the Euro may cede some of its recent gains in trading tomorrow as the Eurozone’s trade surplus is expected to have narrowed in January following a drop in exports in major economies such as Germany at the start of the year.

However looking further ahead Sterling sentiment is likely to remain downbeat over the coming weeks as markets brace for Theresa May to trigger Article 50 and begin negotiations to leave the EU by the end of the month.

Current Interbank Exchange Rates

At the time of writing the GBP EUR exchange rate was trending around 1.14 and the EUR GBP exchange rate was trending around 0.87.