European Summary and Highlights 20 Dec

GBP fell after the much lower than expected UK CPI figure, with the ONS indicating that it was driven by eight sub categories.  The sharp decline in core CPI from 5.7% to 5.1%, will provide comfort in itself to the BOE but will also raise questions whether UK inflation is slowing more quickly than BOE assumptions.  This will fuel spring rate cut talk, especially as we think that the market can discount more on UK rates.  GBP lost ground across the board and some further short-term GBP losses could be seen.   
Elsewhere, the USD consolidated across the board, with Fed officials this week seeking to temper early easing talk in the market and this has stopped the USD softness.  The less hawkish than expected BOJ has also stabilised USD/JPY short-term.  Conditions are getting thin today before the holidays, but some traders expect end of month and end of year USD selling from portfolio rebalancing to hurt the USD before Dec 31.