Fears of banking turmoil in eastern Europe caused global investors to rush for safety on Tuesday, with warnings about European financial institutions provoking a stampede into the dollar and US bonds.
The turmoil was prompted by a report from Moody’s, the credit rating agency, which warned that west European banks with east European subsidiaries were at risk of downgrades. Standard & Poor’s, a Moody’s rival, later issued a similar caution.
The euro fell 1.5 per cent to a two-month low against the US dollar, sinking below $1.26 for the first time since December, and also dropped sharply against the pound and the yen, while the Polish zloty hit a five-year low against the euro. The general flight away from risky assets also hurt US stocks. Bonds rallied as investors put money into the relative safety of government debt.
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