Coming into the year, investors were figuring out how they would trade between two paths set on one side by monetary tightening from the Federal Reserve and, eventually, the Bank of England (BOE), and on the other by Bank of Japan and European Central Bank (ECB) easing.
Now, those investors are rethinking that divide as the U.S. and U.K. economies succumb to signs of a worsening global slowdown, forcing their central banks to rethink the interest-rate outlook. Any split now will be led by how much euro-area and Japanese authorities press ahead with looser policy.
The reassessment following a volatile start to the year suggests a world economy still in need of synchronous and easy monetary policy if it is to escape the threats of low inflation and slowing Chinese demand. It also means a review of the trade that propelled the U.S. dollar higher.
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