Market pricing has shifted following recent data and events, impacting expectations for central bank rate changes by year-end. For the Federal Reserve, a 59 basis points cut is expected, with a 92% probability of a rate cut at the next meeting. The European Central Bank anticipates a 13 basis points cut, with an 88% likelihood of no change soon. The Bank of England’s outlook includes an 18 basis points cut, with a 95% probability of maintaining current rates at their next meeting.
The Bank of Canada’s anticipation involves a 20 basis points cut, with a 72% likelihood of no immediate change. The Reserve Bank of Australia is expected to cut rates by 63 basis points, facing a 98% probability of doing so soon. The Reserve Bank of New Zealand foresees a 41 basis points cut, with an 88% chance of a rate cut at the upcoming meeting. The Swiss National Bank projects a 12 basis points cut, with an 84% probability of retaining current rates.
Bank Of Japan Rate Expectations
The Bank of Japan expects to raise rates by 13 basis points, maintaining a 90% probability of no change shortly. The Bank of England’s recent rate cut surprised with a hawkish stance. Attention is now turning to the upcoming US CPI report and the Jackson Hole Symposium.
Based on the current market pricing as of August 8th, 2025, we believe traders should position for US dollar weakness. The market is pricing in a 59 basis point cut from the Federal Reserve by year-end, with a 92% chance of a cut at the very next meeting. This expectation follows last week’s soft Non-Farm Payrolls report, which showed job growth slowing more than expected.
The Australian and New Zealand dollars also appear poised for weakness, as their central banks are expected to cut rates aggressively. The market gives a 98% probability for a rate cut from the Reserve Bank of Australia at its next meeting, driven by recent data showing domestic inflation cooling faster than anticipated. This creates a clear contrast with other major central banks that are holding steady.
Europe’s Economic Stance
In Europe, we expect the European Central Bank and the Bank of England to remain on hold in the near term. Recent inflation figures in the Eurozone and the UK, hovering stubbornly above 2.5%, justify their cautious stance. This policy divergence could support the euro and the pound against the US, Australian, and New Zealand dollars.
The primary focus now shifts to next Tuesday’s US Consumer Price Index report, which will be critical in confirming the Fed’s path. We anticipate heightened volatility around this release and traders may consider using options to hedge their positions. We recall how the Jackson Hole symposium in August 2022 created major policy-driven market moves, and this year’s event later this month could be similarly impactful.
The Bank of Japan is the main outlier, with the market pricing in a small 13 basis point hike by the end of the year. This follows over a year of Japanese core inflation remaining above the 2% target, a significant shift from the deflationary trends we saw in the early 2020s. Any surprise hawkish move from the BoJ could lead to a sharp appreciation of the yen.
