Traders and economists alike are taking a hard second look at the European economy after S&P downgraded the sovereign debt of Greece yesterday. This is causing a shift of opinion on which economy is recovering from the recent recession faster; the U.S. or Europe?
As the debate rages, currency traders are showing their true colors. Some feel the EUR's run may have extended too far as the EUR/USD climbed to a height of 1.5143 in late November. Since then the pair has fallen and is now trading below the 1.4350 level. Causes of this have been an improvement in U.S. economic sentiment, a potential tightening of U.S. monetary policy and rising interest rates, and the view of overall weakness in the EU economy.
While the stronger economies of Germany and France seem to be pulling out of the economic recession due to large government stimulus packages and previous EUR weakness, the smaller, less fiscally responsible nations of Greece, Spain, and Austria may hold the Euro-zone economy back in its recovery when compared to U.S. One advantage the United States has over the European Union, when it comes to fiscal responsibility national cohesion with only one decision making body in the federal government.