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Finland's Election Results to Fuel Surge in US Dollar?


Finland doesn't normally sway world markets, but does have the ability to veto any proposed bailout by the European Union.

With the US dollar sitting near its one-year low versus the euro, investors are wondering what will be the catalyst to end the euro's run and spark a rally in the dollar. That catalyst may very well stem from Sunday's elections in Finland. The country does not normally sway world markets, but does have the ability to veto any proposed bailout by the European Union.

The gain in the euro versus the dollar has been a steady move upward, as dollar bears have seemingly become complacent in an "easy" trade. That sentiment may come to an end, however, as any shake in European confidence emanating from the elections in Finland may cause bears to cover, and send the dollar higher in the process.

Strong electoral gains for the True Finns and the Socialist Democrats, both of whom oppose bailouts for troubled eurozone members, have European leaders worried that they may not be able to count on Finland's future support for such proposals, the most recent of which is the bailout of Portugal.

Before this election, Finland's pro-bailout government was easily controlled by a four-party alliance headed by the Center Party and the National Coalition Party. Now, things are a bit more uneasy for this coalition, as a gain in popularity for the True Finns and Socialist Democrats will almost certainly demand that opposition voices be recognized, putting bailout efforts in question.

Finland has committed eight billion euro ($11.5 billion) in loan guarantees out of a total European pledge of 440 billion euro ($634 billion). If any country should remove itself from this bailout fund, the whole system would crumble and further deteriorate the ongoing debt crisis. After all, there are significant talks that after Portugal, Spain and Italy are next in line for bailout assistance.

Whether or not Finland's election will, in fact, end up impacting the eurozone's proposed bailout measures remains to be seen, but the mere specter of doubt may be enough to spark at least a temporary decline in the euro, and a subsequent rise in the US dollar.

Besides the use of futures, the use of currency ETFs is a straightforward way to play currencies. The PowerShares DB US Dollar Index Bullish (UUP) will increase if the euro should fall. Conversely, the PowerShares DB US Dollar Index Bearish (UDN) will decline if the US dollar rises.

Editor's Note: This content was originally published on by Benjamin Lee.

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