After initial reactions to Fed Chair Powell’s speech, market pricing stabilised around pre-speech levels. Traders interpreted Powell’s remarks on adjusting policy as dovish, resulting in expectations of over 60 basis points of easing by year-end and a high probability of a September rate cut.<\/p>\n
Attention now shifts to the upcoming NFP report, which will influence interest rate expectations. Strong data may lead to a 50\/50 chance of a September rate cut and more hawkish outlooks later on. Conversely, weak data could boost predictions for a third rate cut by year-end.<\/p>\n
Current expectations for year-end rate cuts show the Fed with 54 basis points, and an 85% probability of a rate cut at the next meeting. The ECB, BoE, BoC, RBA, and RBNZ all have different probabilities and basis point changes forecasted. The SNB expects a 7 basis point change with a high probability of no change. <\/p>\n
In contrast, the BoJ expects an 18 basis point increase by year-end, with an 88% probability of maintaining current rates.<\/p>\n
Following the recent speech from Fed Chair Powell, we saw the market initially price in significant rate cuts before settling down. With 54 basis points of cuts now expected by year-end, all eyes are on the upcoming Non-Farm Payrolls report due the first week of September 2025. This single data point will be the main driver for Federal Reserve policy expectations in the immediate future.<\/p>\n
To give this context, the latest core CPI reading for July 2025 came in at 2.8%, the lowest since early 2023, which supports the Fed’s dovish lean. We remember how a series of soft labor reports in late 2024 finally cemented the end of that hiking cycle. A weak NFP number next week would confirm this cooling trend and likely increase bets for a third rate cut this year.<\/p>\n
Derivative traders should therefore position for volatility around this key jobs report. A strong report, say over 225,000 jobs added, would challenge the current pricing and make selling interest rate futures an attractive trade as the odds of a September cut diminish. Conversely, a soft number below 150,000 would reinforce the dovish outlook, making buying futures or call options on Treasury bonds a viable strategy.<\/p>\n
We must also look at the clear divergence with the Bank of Japan, which is the only central bank where the market is pricing in a rate hike of 18 basis points. This is largely driven by Japan\u2019s Q2 2025 wage growth data hitting a 30-year high, forcing the central bank\u2019s hand. This policy clash suggests potential weakness for carry trades that rely on a strong dollar against the yen.<\/p>\n
Meanwhile, other central banks like the ECB and BoE are expected to remain on hold, offering less immediate opportunity. However, the markets are pricing in more aggressive cuts for Australia and New Zealand, with 37 and 35 basis points of easing expected respectively. This points to continued relative weakness in the Australian and New Zealand dollars, assuming their domestic data cooperates.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" Market eyes NFP report as Powell\u2019s dovish tone boosts rate cut expectations for the year-end.<\/p>\n","protected":false},"author":62,"featured_media":17026,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-29555","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/29555","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/users\/62"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/comments?post=29555"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/29555\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media\/17026"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=29555"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=29555"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=29555"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}