A mixture of higher taxes, higher interest rates, and slower global growth may congeal into lower growth figures for the Eurozone in 2007. The European Central Bank (ECB) and the Bank of England (BOE) have tightened monetary policy recently, and it remains to be seen whether this tightening will ultimately weigh on economic growth over the next year.

Another issue on the horizon is the largest post-war tax hike in Germany. In January, Deutschland’s value-adds-tax (VAT) will jump 3 percent, from 16 to 19 percent. Concerns are rampant within the economic community the tax hike will dampen already sluggish growth prospects.

While the euro (EUR/USD) has been locked within a frustratingly consistent range between $1.29 and $1.24 from mid-May through late-November, the British pound (GBP/USD) has also been range-bound, but much more volatile. Let’s take a look at the underlying economics, interest-rate scenarios, and other factors that could affect forex action over the near to intermediate term.

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