2011 promises to be a turbulent 12 months on the currency exchange markets and already the news is pouring in.
UK
British VAT has increased from 17.5% to 20.0% this morning. This rise (combined with expected tax increases) could prompt reduced consumer spending in the UK in the coming months. For the moment though the retail sector has swallowed the increase to encourage sales.
Festive sales in the UK rose to their highest ever levels in the UK this December. John Lewis for instance posted a 30% increase on its previous record for December 27th. However (as mentioned) tax increases and the VAT rise mean these levels are unlikely to last.
Finally UK mortgage approvals for November hit 48 thousand beating expectations of 47 thousand according to new figures. This bodes well for the UK housing market and could improve sentiment toward sterling.
EU
In the euro zone meanwhile on January 1st Estonia became the 17th nation to join the common currency. This is unlikely to bolster the EMU: Estonia has a population of only 1.3 million and is the smallest member of the EMU. Indeed several journalists are suggesting the euro faces collapse in the near future.
For instance EMU governments and banks must refinance €900 billion of debt between them in the first 6 months this year. This might be difficult: there may be insufficient demand on the markets to meet this requirement meaning several nations could be forced to seek ECB bailouts.
US
In the US manufacturing figures rose for the 17th consecutive month in December. This has led Goldman Sachs to suggest further quantitative easing (in addition to the $600 billion program already in progress through the Fed) may be unnecessary, and as such improved sentiment toward the dollar.
Upcoming Today
In the US the minutes of the last Fed meeting are released today. This will indicate the direction of US economic policy for the coming months.
