Some of the world’s largest money managers and central banks have become increasingly skeptical of the Euro, presenting a threat to the common currency’s future prospects.
So far during the euro’s months-long descent, attention has been focused on hedge-fund selling of European assets but central banks and large managers have a much-larger influence on foreign-exchange markets. Even if they don’t dump Euro assets, a mere pause in their buying could weigh heavily on the currency. The Euro last Wednesday rose to $1.2385(USD), bouncing from $1.2143(USD), its lowest level against the Greenback in four years hit during the day, from $1.2210.
So concerned are U.S. investors that Treasury Secretary Timothy Geithner is heading to Europe later this week to confer with finance ministers in Britain and Germany about ways to restore global confidence in the financial system on a trip. The Treasury Department announced the trip Thursday after a rough day on global financial markets. The Dow Jones industrial average fell 376 points, its biggest point drop since February 2009.
Investors are concerned that the debt problems in Greece and Portugal will spill over to other countries in Europe and threaten to derail the economic recovery in the United States and elsewhere. Read more from the Baseline Scenario here, and from HuffPo here.
Sources: WSJ, Bloomberg, HuffPo, FT, et al.