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Trending Economic: US Edition [15 December 2015]

UK CPI y/y for November came in at 0.1%, same as expected, up from previous -0.1%. This is the first rise in over four months, but we need a more consistent data to have a significant impact on GBP. The market is currently pricing in a rate hike in 2017 and latest inflation data do little to change this view. However, the unemployment rate & average earnings on Wednesdays will give a better reflection of the UK economy where a better than expected data (signals wage pressure) will push GBP higher. Also the BoE in the monetary policy meeting last week said that a rate rise in UK is independent of rate rise from other central banks. This highlights the fact that BoE is worried that a rate rise by the Fed on Wednesday will put upward pressure on GBP as market moves forward the pricing of a BoE rate hike.

USD continues to remain soft heading into the FOMC meeting on Wednesday. In terms of economic data today the most important remains the US CPI y/y which is expected to improve 0.4%, this could be the catalyst market needs to go long USD over the short-term. Over the medium-term the market will start looking at the path of interest rates into 2016, currently the rates market currently pricing in fewer than two hikes next year but this can change quickly based on how market handles a probable US rate hike this year and how the US economy performs amid global headwinds.

From Euro area the data continues to be positive this week with Euro area Q3 employment change coming in at 1.1%, up from previous 0.8%. Also the German ZEW economic sentiment came in at 16.1, up from previous 10.4, this is the second straight monthly rise and after 7 straight drop seen prior to November. Elsewhere, the Riksbank left key interest rates unchanged at -0.35% and given that Sweden’s economy is improving better than rest of the European counterparts we expect SEK to outperform EUR, CHF & NOK.