We should not forget the effect of US long-term interest rates on euro-zone long-term interest rates

The future trend in long-term interest rates in the euro zone is sometimes predicted merely by looking at their euro-zone determinants: inflation, ECB policy, need to maintain countries’ fiscal solvency. This is clearly what financial markets are doing. But we should not forget the high correlation (0.6 to 0.8) between changes in long-term interest rates in the United States and in those in the euro zone. Euro-zone long-term interest rates could then rise: Significantly, if after the US presidential election there was a change in economic policies leading to inflation and rising dollar interest rates; Slightly, if, without a change in the Federal Reserve’s monetary policy, the US yield curve steepened due to the improvement in growth.