Today sees the release of European unemployment figures, which aren't likely to paint a pretty picture. Indeed, there are some suggestions that the Euro at 10 is a currency in trouble.
The EU seems to be headed for the same spot the US was in back in September, when the financial crisis took a sharp turn for the worse and shut down credit markets entirely. That sparked a global banking shutdown that Europe narrowly averted thanks to liquidity injections, but it's now like déjà vu all over again in Frankfurt. The European Central Bank is now reportedly considering a clearing house of sorts to guarantee interbank lending. Whether this exacerbates the liquidity shortage in emerging markets remains to be seen.
So far, money appears to be trickling back in as investors reappraise the wisdom of treating the US dollar and T-bills as risk-free assets in light of the Fed's expansion of the dollar supply. UAE banks are not particularly reliant on European banks for external financing, according to analysts.
Strangely, though, the Euro has been appreciating during the pullback from the dollar despite the fact that the ECB has also been expanding its balance sheet, like the Fed, and injecting liquidity by exchanging good assets for bad. I suspect it has to do with the ECB's refusal to follow the Fed down the interest rate path and Trichet's hawkish tone on the subject of monetary and fiscal policy.