Traders have a theory about why the euro is reasonably stable amid a broadening debt crisis: Asian central banks are converting proceeds from recent intervention moves into other currencies. "Asian central banks" has become a euphemism for China, whose reserves now exceed $3 trillion. China is making deals with nations such as Brazil to conduct trade in yuan. It's also making noises about the Federal Reserve's zero interest-rate policies and Congress playing games with the debt limit. If you were managing China's reserves, how many more dollars would you really want in this environment?
Heck, China is even loading up on Spanish debt these days. "China's open admission of continual purchases of European debt shows it doesn't consider the US any safer," says Simon Grose-Hodge, head of investment strategy for South Asia at LGT Group in Singapore.
The risk that America's sugar daddy is getting fed up hasn't escaped US officials. It's probably no coincidence that Fed officials are talking about dismantling their quantitative-easing programme while Washington is homing in on the deficit. (read more)
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