This past week was an important one for monetary policy. The Bank of England (BoE) made clear it is willing to put off rate hikes as long as necessary. Despite its words that suggest otherwise, the Bank is NOT biased for action. U.S. Federal Reserve Chair Janet Yellen made it clear that, all else being equal, the Fed prefers to get going with hiking rates. The Fed now clearly occupies a policy island where it is the only major central bank seriously contemplating near-term rate hikes.

The strong economic data coming from the latest U.S. jobs report provided the perfect follow-through to Yellen’s commentary. The end result is a U.S. dollar index (UUP) charging full steam ahead, and a British pound (FXB) confirming an on-going retreat.

The U.S. dollar index is full speed ahead in the middle of an impressive breakout from the previous downtrend drawn from March’s 12-year high

The British pound (FXB) has been losing altitude against the U.S. dollar since the summer. The Bank of England greased the skids.

The BoE has seemingly ended the British pound’s slow comeback from recent lows against the Japanese yen (FXY)

Source for charts: FreeStockCharts.com

The 30-day Fed Funds Futures have effectively announced that a Fed rate hike is coming in December. I believe these are the highest odds of a rate hike for an upcoming meeting ever since the hand-wringing began in earnest over the timing of a Fed rate hike.

Financial markets are finally gearing up for an imminent rate hike

Source: CME Group FedWatch

The jobs report was strong with an unemployment rate at 5.0% and the addition of 271,000 jobs for October. Perhaps most telling is a breakout in wage growth. The Fed has had a habit of hesitation in the face of sluggish wage growth. It looks like one more excuse for inaction is fading to the background.

Wage growth is finally breaking out

Source: US. Bureau of Labor Statistics, Average Hourly Earnings of All Employees: Total Private [CES0500000003], retrieved from FRED, Federal Reserve Bank of St. Louis, November 7, 2015.

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