This morning the GfK Consumer Confidence figures for December have been released, and revealed that UK consumer confidence has hit a 12 month low. This reflects (a) consumer concerns about scheduled VAT rises and (b) concerns that the Coalition Government’s tax hikes will cut disposable income next year.
This has caused the GBPEUR exchange rate to fall to 1.1770, and bodes ill for sterling in 2011.
In the last 24 hours the outlook for the euro has also soured. The planet’s biggest bond fund Pimco has recommended that the indebted PIGS (Portugal, Ireland, Greece and Spain) temporarily exit the EMU in order to restructure their debt and devalue their currencies. The head of Pimco’s European Portfolio Andrew Bosomworth noted too that he believes the present EMU arrangement is unsustainable.
Furthermore in the last 24 hours credit rating agency Moody’s has (a) devalued the credit supplied by leading Spanish banks and (b) warned that it may reduce the debt rating of the Portuguese Government.
Presently these announcements have not adversely affected the euro exchange rate as the markets enter their Christmas holding pattern. However they point to continuing troubles for the common currency in 2011. This could negatively affect sterling owing to close UK relationships with the euro zone, and bolster the dollar as investors seek a safe(er) haven.
In the US meanwhile the outlook looks stronger for 2011. The Fed recently announced that QE II has successfully boosted growth of the US economy, and Regional President James Bullard has commented saying the Fed may cut short its program of quantitative easing if growth continues.
by Peter Lavelle with foreign currency exchange specialist Pure FX.
