Last resort

20 May 2010 By Agnes Crane

Haven status in a market storm sounds good for the U.S. but could make it less safe. Sure, it bolsters the dollar s standing and delivers the perk of cheap financing. But for a nation that desperately needs to kick its borrowing habit, the weak euro could be a bad influence.

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The euro has fallen roughly 14 percent since the beginning of the year, with the bulk of the decline coming in the last month as worries over the solvency of some euro zone nations intensified. The dollar, against a basket of currencies including the euro, has climbed 10 percent so far this year.

U.S. government financing costs have declined this year despite increased borrowing. A global flight to quality has pushed the benchmark 10year note to 3.23 percent, down more than 50 basis points from the beginning of the year. The government is paying less than 1 percent on twoyear borrowing.

Federal Reserve Governor Daniel Tarullo warned on May 20 that Europe's sovereign crisis could hurt U.S. exports and in a worstcase scenario cause another freeze in credit markets reminiscent of the one two years ago.

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