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Talking Points:

  • Euro drops as Catalan separatists maintain majority in local government
  • Australian Dollar gains with local yields, hinting at firming RBA outlook
  • US Dollar fireworks unlikely on PCE inflation data in pre-holiday trade

The Euro declined in muted Asia Pacific trade after separatists retained control of in regional government in Catalonia. The early election was pushed by the central government in Madrid in hopes of installing a friendlier administration after the past year’s unrest. That gambit failed, with parties favoring independence from Spain claiming 70 seats in the 135-member legislature.

The Australian Dollar continued to push higher, building on the previous day’s outsized gains. The move tracked an increase in local front-end government bond yields, hinting at hawkish shift in RBA monetary policy expectations as the catalyst driving the advance. Still, the priced-in policy outlook do not envision a rate hike until September of next year at the earliest.

Looking ahead, a quiet economic data docket in European trading hours puts US news-flow back into the spotlight, with the Fed’s favored PCE inflation gauge on tap. That is expected to show that the core on-year inflation rate hit a five-month high of 1.5 percent in November. Anything short of a wild deviation from forecasts seems unlikely to generate a strong US Dollar response in thin, pre-holiday trade however.

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Asia Session

Euro Drops as Separatists Triumph in Catalan Elections

European Session

Euro Drops as Separatists Triumph in Catalan Elections

** All times listed in GMT. See the full DailyFX economic calendar here.

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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