Fed Rate Hike: Less Than A 25% Chance (page 2 of 2)

As we said yesterday, the rate hike is near certainty with strengthening economic reads and Trichet's post-meeting hawkish rhetoric, but the real salt lies with whether the central bank will produce back-to-back rate hikes or stick to their current, quarterly pace.

British Pound

The British pound has little changed of its own accord Friday as the sole indicator from the country to hit the wires was GfK's monthly read on consumer confidence. The July survey produced an unimpressive repeat of the -4 read, which in retrospect matches the highest level the indicator has seen since January. This steady pace of confidence found its support from the strong showing in economic growth over the second quarter and recent improvements in the labor and housing market.

This aside, the real underlying theme of the market was the Thursday's MPC meeting. There is a 40 percent chance of a rate hike, according to futures markets. While this isn't tremendous considering the weigh in on other meetings for other central banks have often soared well into the 90's, it is significant for the BoE. Often regarded as one of the most volatile policy groups, the certainty with which it is going into the week of the meeting is the highest it has been since 2003.

Japanese Yen

The Japanese yen saw a torrent of data in the overnight that offered the world's second largest economy an overall glow. The first set of data, in employment, drew a mixed tone. While the jobless rate rose to 4.2 percent, rising off of an eight-year low to its highest level since January, the job-to-applicant ratio made this increase in the overall level of unemployment require some interpretation.

The number of jobs available to the Japanese populace rose to its highest level in 14 years as more women entered the work force. This is likely the reasoning behind the jump in the jobless rate, rather than any significant level of layoffs. Consumer reactionary reads were also mixed. Overall household spending fell 2.2 percent in June, its fastest pace decline since the first month of the year.

However, retail sales for the same month rose for the second consecutive month. Furthermore, the 0.4 percent pace of annual growth was likely understated as it represents only sales at traditional brick-and-motor operations and doesn't account for the increased interest in internet shopping. Finally, inflationary data was attracting attention from policy hawks. National inflation for June held at its eight-year high 0.8 percent, but the forward-looking headline, July Tokyo numbers came in below expectations. All in all this data supports a second rate hike before the year's end.