The Euro Reverses Its Gains as Trump Win Weakens Establishment Parties in Eurozone
During the week before the U.S. presidential election, the euro gained against the dollar, but the opposite could happen now. The euro could resume its downward trend. There are some key European political events coming up that could overturn the status quo in the same way that Trump did by winning the election.
On December 4, Austrians will vote for a new president. There is a good chance that the winner might be Norbert Hofer, a local version of Donald Trump. He stands firmly against the European Union and opposes immigration.
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Also on December 4, Italy will face a hotly debated constitutional referendum. Many see it as an unofficial vote of confidence in Prime Minister Matteo Renzi. If Italians vote ‘No,’ it could bring down the government, prompting another election. Many believe the populist and anti-euro, anti-NATO ‘Cinque Stelle’ (meaning Five Stars) could win those elections.
In March 2017, it’s the Netherlands’ turn for parliamentary elections. The right-wing and anti-immigration ‘Party for Freedom’ is gaining ground.
Then, there are two big elections that could not only bring down the euro but also fracture the EU. The French presidential elections (two rounds: April and June 2017) could be won by Marine Le Pen, a nationalist and euro-skeptic. In September 2017, Germany will have its own election. There is strong speculation that eurozone champion Chancellor Angela Merkel will lose her seat.
The Specter of EUR/USD Parity Is Back
“What happened in America can happen in Europe…,” said Geert Wilders of the Dutch Freedom Party. Meanwhile, the strong markets and favorable job numbers, coupled with rising inflation, may prompt the U.S. Federal Reserve to raise interest rates in December. That would push the USD higher against the EUR, which faces pressure from all sides.
Trump’s win over Hillary Clinton has unleashed a populist wave that is building strength. It could become a tsunami that brings down the very political forces that have sustained the euro. (Source: “After Trump and Brexit, populist tsunami threatens European mainstream,” Reuters, November 9, 2016.)
If there is anything that the U.S. presidential election has shown, it’s that pollsters have lost their compass. They have not grasped how an increasingly fragmented western society puts everything into question. There is no shortage of risk to the eurozone in coming months, and pressure on the euro will be heavy. Even the German economy’s continued strength might not withstand the pressure of the populist tsunami.
