Despite a better-than-expected pending home sales report coming out of the U.S. on Thursday, the day's soft jobless claims figures are instead dictating the direction of the Fed fund futures market.

Year-end rate hikes are consequently in the midst of being priced out. Markets are pricing in a 62.3% chance that the Federal Reserve will keep rates on hold. That represents an 18% greater chance than on Wednesday. Conversely, implied market probability shows a mere 0.3% chance of three 25bp hikes, down from 1.4% on Wednesday. A 50bp hike is 5.4% priced in, down from 12.9% a day ago.

While pending home sales were reported to have rebounded by 5.3% in June on Thursday, against expectations that the index would fall by 1.0%, initial jobless claims climbed to 455K in the week ending Aug. 2, setting a new cyclical high for the second week in a row. Continuing claims rose to 3.311 million for the week ending July 26.

Northern Trust's Asha Bangalore says the continuing claims figure is particularly indicative of a weak labor market.

"If the number filing for unemployment insurance claims in the next few weeks shows additional gains, one could be assured that these claims are indeed indicative of further weakness in hiring," she wrote to clients. "That said, the very fact that the number filing for unemployment benefits under the extended benefit program is advancing is itself indicative that job losses are mounting and the labor market is significantly weak."

With regards to the Oct. 29 Federal Open Market Committee meeting, Fed funds show a 70.6% chance of a hold on rates at 2.00%. There's a 29.4% chance for at least a 25bp hike.

Markets are pricing in an 84% chance that the Fed will hold rates at the upcoming Sept. 16 meeting, up from Wednesday's 76%. The remaining 16% favours a 25bp hike.

Earlier in the day, the European Central Bank and the Bank of England each opted to hold rates at 4.25% and 5.00% respectively.

All data taken at 3:15 p.m. EDT.

By Ryan Szporer with contributions from Patrick McGee and edited by Sarah Sussman