The U.S dollar surged on Tuesday, March 14, ahead of an expected interest rate rise by the U.S. Federal Reserve. The dollar index, which measures the greenback against a basket of six major peers – four of them European – climbed by a third of a percent to 101.67.
The euro, which on Monday hit a five-week high above $1.07 EUR= on the expectation that the European Central Bank is moving towards winding back its stimulus program, inched down to $1.0644, with dovish comments from ECB officials adding to a cautious mood.
Sterling slipped as much as 0.9 percent to $1.2110 GBP=D3, its lowest in eight weeks, as concerns increased over a second Scottish independence referendum and the triggering of Article 50, which will formally begin Brexit negotiations.
The Netherlands will vote on Wednesday in an election that is seen as a test of anti-immigrant, populist politics that swept across the West in 2016.
Polls suggest the government may lose about half its seats at the hands of the anti-Islam Party for Freedom (PVV) party of Geert Wilders. Though Wilders has virtually no chance of winning enough seats to form a government, a PVV win would nevertheless send shock waves across Europe.
“The worry is that PVV will do better in Holland on Wednesday than what’s already priced in (and) you’ve got these tensions in the UK because of the Article 50 trigger,” said BMO currency strategist Stephen Gallo, in London.
“So you’ve got a stronger dollar weighing on European currencies because the political outlook for Europe is so uncertain right now, and Fed messaging has not helped those currencies, with speculation that the March hike could be a hawkish hike,” he added.
With a Fed rate increase already seen as a done deal, investor focus was on what kind of a message the Fed would deliver after its two-day meeting starting later on Tuesday, Reuters reports.
