Insights 
VT 
There is a strong anticipation surrounding the first trade deal, which is expected to influence interest rate expectations significantly.
For the Fed, there is a 99% probability of no change, with rates at 78 basis points (bps). The European Central Bank has a 92% probability of a rate cut, bringing rates to 62 bps. The Bank of England is at a 91% probability for a rate cut, with rates at 94 bps.
Central Bank Probabilities
The Bank of Canada is less certain, showing a 54% probability of a rate cut and rates at 48 bps. The Reserve Bank of Australia has a 97% probability of a rate cut, bringing rates to 110 bps. The Reserve Bank of New Zealand is at 67% probability for a rate cut, with rates at 72 bps.
The Swiss National Bank is seeing a 99% probability of a rate cut, with rates at 44 bps. The Bank of Japan is likely to remain unchanged, with a 97% probability and rates at 10 bps.
The SNB’s position is influenced by recent dovish comments and lower-than-expected Swiss inflation data. The first trade deal is anticipated to impact these interest rate expectations, especially for the Fed in 2025.
Current pricing shows that rate expectations have shifted firmly toward cuts across most major central banks. These probabilities aren’t just numbers floating in a vacuum – they reflect real trades made on the basis of central bank commentary, inflation prints, and, lately, trade developments that we’ve monitored daily. What’s clear is that global monetary policy is entering a more accommodative stance, not on the margins but quite visibly, and the market has not hesitated to reflect that.
Monetary Policy Trends
Powell’s position remains consistent with a long pause, and at 78 bps, we’re seeing interest rate traders fully factoring in no immediate change in June. However, that doesn’t mean complacency. The emphasis has subtly shifted towards what could materialise in the first quarter of next year. With U.S. data showing gradual moderation, there’s little incentive for abrupt moves, but we’re not ignoring the sensitivity to inflation surprises. Any hint of sticky pricing or labour market resilience could temporarily shake current positioning.
Lagarde’s situation appears more straightforward. With a 92% chance of a cut and pricing at 62 bps, traders have already taken the view that weaker demand across the eurozone justifies action. The energy base effects have worn off, and the current inflation trajectory supports an easing bias. Those with existing euro exposure would do well to consider whether to hold onto short-end receivers for now or start trimming, depending on exposure to periphery curve steepening.
At Threadneedle Street, pricing has leaned in the same direction, mirroring Frankfurt’s expected move. At 91% probability and 94 bps, the expectation is nearly baked in. What drove this? Softening labour market reports and surprisingly dovish MPC commentary. The key focus for the next fortnight will be wage data and services CPI – both likely to steer rate cut timing but not upend the broader path. Sterling rates traders have shown restraint, and it’s justified. That said, we’re watching the August meeting closely, as market breathers signal more volatility on policy clarity.
Macklem’s position is less tidy. The pricing suggests a near toss-up on whether the BoC will cut, with probabilities sitting at 54%. The CAD curve has adjusted somewhat chaotically over the past week as inflation beat marginally but remained within anticipated bounds if you adjust for volatile components. Still, traders would be wise to watch Canadian housing data and core CPI revisions very closely. These pose a risk to forwards currently pricing a mild downtrend into autumn. Those long duration up north may be running slightly ahead of policy signals.
Over in Sydney, Lowe’s successor inherits a rate environment easily swayed by external factors. With the market expressing a 97% chance of easing and current pricing at 110 bps, it’s an open secret that the RBA is viewed as behind the curve. Australia’s recent retail sales slump and falling consumer expectations have fuelled this. Even so, cross-market positioning in rates has not aligned with the same energy as the ECB or BoE trade yet – meaning there’s still scope for relative value to be captured across AUD versus EUR or GBP structures.
The policy stance from Wellington shows less consensus than Canberra. At 67% probability for a cut and 72 bps on the curve, the RBNZ faces pressure from poor business sentiment and falling construction demand, but its more hawkish legacy tone still lingers in some market corners. We’ve seen index-linked expectations widen marginally, especially on forward inflation, suggesting traders aren’t rushing to heap duration on front books just yet.
Jordan’s path is the clearest of them all – the Swiss bank is practically guaranteed to cut again, with rates at 44 bps. The dovish tone emerging from recent communications aligns with trends seen in both real and headline inflation, and the FX market has responded in kind. We’re seeing only minor optionality priced in for a hold, and no real disagreement on direction. There may be trades unwinding soon as expectations for further cuts consolidate.
Ueda’s bank stands alone, with near-unanimous belief of no imminent move. At 97% and 10 bps flat, there is little on the surface to spark re-pricing. Even the yen’s underperformance has failed to stir much response. Japanese inflation pulses higher for now, but not wide enough to test the BoJ’s patience. Unless wage prints—or imported inflation from weaker exchange rates—begin to shift consistently, derivatives here will likely remain tame.
As for broader implications from the trade deal expected soon: we’re already seeing anticipatory movements, particularly in U.S. rate futures further out the curve. The nature and clarity of the agreement will matter. If it reduces geopolitical uncertainty meaningfully, we could see some curve flattening – especially in markets already pricing monetary easing. There’s no hiding from it. One-off headlines can still shift tactically, but trend conviction in rate cuts is strong where macro data justifies it.
In this environment, we find clarity in volatility. Short-term adjustments have been rapid, but long-dated expectations still hint at inflation normalisation. Traders would do well to calibrate exposure across curves rather than rely on directionality alone. Our desks have seen increased appetite for conditional steepeners, especially in jurisdictions where cuts are priced in with high certainty. Watch the weeklies – they’ll tell you if positioning has gone too far too fast.
