There are three important economic events tomorrow.  The UK will release its December employment report and November weekly earnings data.The US reports December CPI.The Bank of Canada meets, and is widely expected to be the first central bank from a high income country to cut rates this year.  

Sterling has lost 5.6% against the dollar since December 28.  The key factor is that the economy is slowing, which pushes further out in time a Bank of England rate hike.Anxiety over the EU referendum has not helped matters.  

Sterling is posting an outside down day today, having traded on both sides of yesterday’s range and will likely close below yesterday’s low (~$1.4240).  Tomorrow’s labor report is unlikely to reserve the bearish sentiment.In contrast to the US employment report, which showed the largest increase in nonfarm payrolls for all of 2015, the UK labor market has turned.  The claimant count hasincreased for four months through November and is expected to have increased again in December.  

Average weekly earnings had been rising sharply from mid-2014 through May 2015, peaking at a 3.3% (three-month average year-over-year).  This is why some many had expected a BOE rate cut. The pace slowed to 2.4% in October and was expected to have slowed to 2.1% in December.     

On Thursday, the UK reports retail sales figures. The risk is on the downside.While the fundamentals do not encourage picking a bottom to sterling, much of the bad news seems to have been discounted.One sign of a potential bottom is if sterling sells off on poor data and then recovers.  

II

Lower oil prices and a strong dollar are supposed to conspire to depress US inflation. And so they have, but what goes unacknowledged is that despite this, US core CPI has steadily increased over the course of 2015. Core consumer prices rose 1.4% in 2014. Tomorrow’s December print is expected (Bloomberg consensus) to rise to 2.1%. This wouldbe the largest increase since July 2012. The consensus expects the core rate to rise 0.2% for the fourth consecutive month, which indicates that core CPI may be accelerating faster than the year-over-year rate suggests.