Traders have adjusted their expectations for a Fed interest rate cut in September, with data not prompting any reassessment. Currently, there is a 98% probability of a rate cut at the upcoming Fed meeting.
For other central banks, probabilities for maintaining current rates are high. ECB stands at 95%, BoE at 92%, BoC at 67%, RBA at 63%, and SNB at 82%. Meanwhile, the RBNZ shows a 90% probability of a rate cut.
Probabilities and Forecasts for Central Banks
There is a 90% probability that the BoJ will maintain its current rates, with a potential 14 bps rate hike by year-end. The Fed’s pricing increased to 61 bps after the US CPI report aligned mostly with expectations.
Most Fed voters support a September cut, but a strong Non-Farm Payroll (NFP) report could alter these odds. Focus now shifts to Fed Chair Powell’s upcoming speech at the Jackson Hole Symposium, where he might align with peers or emphasize data-driven decisions.
Based on today’s data from August 13, 2025, we see a near-certainty of a Federal Reserve rate cut in September. The market is pricing in a 98% probability for such a move. The recent July Consumer Price Index report, which showed inflation holding at 3.1%, was not strong enough to challenge this outlook.
The main risk to this view is the upcoming Non-Farm Payrolls report. The US labor market has been gradually cooling throughout 2025, a clear slowdown from the stronger job growth we saw in late 2024. It would take a surprisingly hot jobs number, likely well above 250,000, to force the Fed to reconsider the September cut.
Divergent Monetary Policies
This sets up a clear divergence against European central banks. With Eurozone inflation proving sticky around 2.8%, the European Central Bank is expected to hold rates steady, as is the Bank of England. This makes interest rate derivatives that bet on the US dollar’s yield falling relative to the euro or the pound a straightforward strategy.
We see even more aggressive easing priced in for the Reserve Bank of New Zealand, which has a 90% chance of a cut at its next meeting as its economy slows more sharply. On the other hand, the Bank of Japan is the only major central bank leaning towards a hike. This makes trades that favor the Japanese yen against currencies with clear easing policies, like the New Zealand dollar, a compelling option.
All attention now shifts to Fed Chair Powell’s upcoming speech at the Jackson Hole Symposium. We remember how he used this event back in 2022 to signal a very aggressive stance, so markets will be sensitive. Any deviation from the expected dovish tone could create a surge in volatility, presenting opportunities for options traders.
