With global monetary policy tightening, what will smaller central banks do now? Most didn't have a choice but to keep rates low to avoid excessive currency appreciation, and some had to resort to quantitative easing (like Sweden) or currency floors (like Switzerland and the Czech Republic). The Swiss floor gave in under pressure in early 2015, so the big question is now whether the Czech Republic might also depart from its currency floor?
Since Trump's election in November, financial markets have focused on the reflation trade. Inflation expectations and bond yields have risen, as have equities and commodities. Although the US dollar has strengthened by a little over 3% on a trade-weighted basis, this masks the individual currency winners and losers.
Many investors have been flagging 2017 as carrying a high degree of political risk in Europe, with some of the big economies heading to the ballot box. The importance of Germany and France, given their economic size, political clout and as two of the founders of the EU, is without question. However, another founding member, albeit smaller, is the first one to hold elections this year on 15 March 2017. Could the outcome of the Dutch election be a threat to the European Union?