Currently, the euro is flat against the dollar and yen, but fell against sterling.
However, there was a more muted reaction to the election on the bond markets. Yields on several European government bonds rose by around 5 basis points following the election’s results.
“The results of the Dutch election helped to buoy investment markets following a better-than-expected outcome for mainstream parties,” said Darren Ruane, head of fixed income at Investec Wealth & Investment, in a press comment.
“Government bond yields in Europe are trading only marginally lower from overnight levels. Bond markets were forecasting a benign outcome from the Dutch elections, with a very strong gain for Wilder’s Freedom party required to disrupt markets in a meaningful way.”
With the Dutch election out of the way, investors are turning their attention towards the French elections, where a victory by the far-right candidate Marine Le Pen would be seen as destabilizing for the euro zone.
“From a fixed income perspective, the focus is now on France,” said Ken Orchard, portfolio manager of T. Rowe Price’s International Bond Strategy, in a comment.
“While the probability of a Le Pen victory remains slim, it is a major risk that the markets are wary of and would deal a serious blow to the future of the euro zone.”
European assets are likely to experience short-term volatility ahead of French and German elections, according to Jon Jonsson and Andrew Wilmont, senior portfolio managers at Neuberger Berman.
“From a market perspective, many investors will be nervously eyeing the first round of the French election next month, hoping that it too will be relatively benign,” they said in a press release.
“In recent months Europe has been enjoying a fragile recovery. But it is highly sensitive to shocks.”
A negative shift in sentiment stemming from these upcoming elections could disrupt Europe’s recovery, warn Jonsson and Wilmont.