The surprisingly strong Nationwide house price survey for June helped drive cable above the 2.000 figure once again, as it suggested that the BoE will have no choice but to raise rates to 5.75% in July. The much bigger than forecast jump in monthly housing prices which printed at 1.1% vs. 0.5% expected and a whopping 11.1% on a year over year basis puts enormous pressure on UK central banker to tighten monetary policy further.

We have been skeptical of the need of the BoE to raise rates so quickly after the May hike, given the fact that the UK consumption is clearly slowing under the twin constraints of higher interest rates and higher energy prices, however, tonight’s news tips the odds in favor of the cable hawks irrespective of the overall consumer demand. Housing continues to the be key focus in BoE battle against inflation and that along with the fact that money supply figures have expanded at a blistering 13.8% pace in May is likely to push UK monetary authorities to raise rates in July, especially since MPC has already revealed its hawkish predilection to do so in June through its 5-4 vote.

M3 growth is also a concern in the Euro-zone where tonight’s figures showed a hotter than expected print of 10.7% vs. 10.4% projected. While, monetary aggregates are not the only factor in ECB decision making, tonight’s data along with better than expected reduction in German unemployment offers strong reasons for ECB to implement another round of tightening before the summer’s end. The one sour note on tonight’s calendar was the miss in EZ Retail PMI numbers which printed at 48.2 vs. 48.4 the month prior. June was the second consecutive period of contraction led by a steep drop in French figures. The consumer remains the one trouble spot in an overall positive EZ economic environment but the weakness in that sector may not deter ECB from additional rate hikes, especially if the labor markets in the region continue to improve and naturally stimulate consumption.

Finally, the yen had yet another setback in overnight trade as Industrial Production fell -0.4% vs. 0.9% projected gain. The drop was the third consecutive monthly decline indicating that the inventory adjustment in the industrial sector may be taking longer to resolve itself and should result in slower GDP growth in Q2. As we noted yesterday, yen remains vulnerable to “renewed carry trade momentum should Japanese economic reports miss their mark yet again.” Tonight’s trading is a prime example of that fact. Still attention in Asia will now turn to tonight’s CPI and household spending data and should the numbers prove supportive, they will once again spur speculation of a possible rate hike by the BOJ. However, further weakness in Japan’s economy will be detrimental to the yen as USD/JPY may then challenge the 125.00 mark. The truth of the matter is that BOJ hawkish rhetoric notwithstanding, the Japanese authorities will be powerless to stop the decline in the currency if their monetary policy continues to remain neutral.

Boris Schlossberg is a Senior Currency Strategist at FXCM.