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Europe bets on weathering a US downturn - by Chris Giles and Ralph Atkins
Currency traders have become convinced over the past two weeks that something big is afoot in the global economy. They are not convinced by the sanguine noises coming from the Federal Reserve and think the risks of a “hard landing” in the US economy have risen. But, in a departure from the old wisdom, they do not seem worried about the effects of a US downturn on European economies – rejecting the old adage that “when the US sneezes the rest of the world catches a cold”.
They appear to be trading on the belief that, while US interest rates will fall in an effort to counter a slowdown, European rates will continue to rise – and, by implication, that Europe’s economic upswing has some way to go. This has led to steep declines in the dollar, which tumbled to a 20-month low against the euro and to a 14-year trough against sterling.
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