Insights 
VT 
Interest rates expectations have shifted towards a more hawkish stance due to higher than expected Non-Farm Payrolls (NFP) and central banks showing less dovishness. Most central banks appear to be waiting to observe upcoming economic data over the summer before making further policy decisions.
The Federal Reserve indicates a 46 basis points expectation with a 99% probability of no change in its forthcoming meeting. The European Central Bank anticipates a 25 basis points shift with an 87% probability of maintaining current rates. Meanwhile, the Bank of England has a 40 basis points expectation, with a 94% likelihood of maintaining its position.
Central Bank Policies and Probabilities
The Bank of Canada shows a 27 basis points forecast, with a 78% probability for stability. The Reserve Bank of Australia expects a 71 basis points change, with a 77% chance for a rate cut. The Reserve Bank of New Zealand has a 29 basis points outlook, with a 69% probability of no change. The Swiss National Bank anticipates a 46 basis points movement, with a 73% probability of a rate cut, and a remainder possibility for a 50 basis points cut.
By year-end, the Bank of Japan foresees a 17 basis points shift, with a 99% probability of maintaining its current rate.
From what we’ve already observed, central banks around the world are shifting away from dovish signals. Elevated non-farm payroll figures have underpinned a firm macro environment, which, when coupled with hesitation among central banks to commit to easing, has led market participants to revise expectations for rate cuts. None of this is theoretical any more—it’s been priced into interest rate futures with speed and clarity.
Powell’s current stance on rates suggests a holding pattern in the near term, with short-end U.S. rates reflecting a materially reduced likelihood of imminent dovish action. The numbers offer little ambiguity: 46 basis points imply the curve still prices in some later-year movement, but for now, traders have mostly walked back earlier optimism around easing. This creates a higher-floor scenario in the dollar’s funding cost, adding pressure for USD carry and swap positions to remain stable, at least for the time being.
Lagarde’s team is still pencilled in for one modest move lower this year, but euro traders have already responded to slower-than-hoped data improvement, thereby pricing in a reduced chance of near-term easing. With an 87% likelihood of no change upcoming, any deviations will require a meaningful shift in core CPI trends or a hard deterioration in growth data. Otherwise, rates in the eurozone stay where they are. For short-term EUR rates instruments, spreads continue to compress, surrendering expectations of more aggressive adjustments this cycle.
Bailey’s forecast sits somewhere in between—neither overly rigid nor fully tilted towards relief. With a 40 bps implied change over the horizon and 94% odds of standing still in the next meeting, market pricing points to June and July data being the make-or-break determinant for any move. We believe attention should stay on wage growth and services inflation. Any stickiness there could see implied vol swing abruptly in longer gilts and short sterling contracts. Consider tightening exposures in instruments sensitive to terminal rate adjustments.
Macklem’s current pricing—a projected move of only 27 bps, and 78% chance the rate sticks where it is—confirms a middle path approach out of Ottawa. Canada’s growth outlook has moderated somewhat, but inflation has proven resistant in core readings. Positioning along CAD OIS may benefit from further relative value opportunities against more active central banks, especially in cross duration trades.
Implications for Currency and Rate Strategies
Meanwhile, Bullock’s curve, with 71 bps reflecting speculation towards an easing step, might still be a step ahead of what’s justified by current economic prints. Though 77% confidence in a cut is notable, the data hasn’t been consistently soft enough yet to warrant that degree of conviction. Traders active in AUD-linked structures should stay wary of mispricing around quarterly CPI releases, as the market could still unwind some pro-cut expectations in aggressive fashion.
Orr’s outlook carries just under 30 bps priced and assumes a 69% chance of staying on hold. There remains the possibility of dovish tilt if house prices slide further or if retail demand contracts harder than expected. But right now, swaps suggest the RBNZ will opt to wait. If we look at the two-year swap market, steepening pressure could mount if short-end cuts are pushed out into 2025. We see scope for curve adjustments here that are arguably underappreciated.
At Jordan’s institution, the Swiss franc has played a dual role—as a low-yielder and as a defensive asset. With a 46 bps forecast and a 73% chance for a cut, the market is leaning towards an easing event within a tight window. Still, implied CHF volatility has underperformed what that level of probability might justify, possibly due to historic expectations of SNB caution. This may pave the way for short CHF trades if rate decisions begin aligning with the higher end of market forecasts—rate differentials remain pivotal for carry.
Ueda’s path diverges from others. A meagre 17 basis points priced in by year-end with an overwhelming probability of steady policy tells a story of exceptional policy patience. Traders here often display more interest in the yield curve control mechanism and outright JGB buying rather than rate speculation per se. And rightly so—any policy shift is more likely to come via technical tweaks than blunt rate changes. Attention should fall on any adjustments to purchases or policy corridors. The yen’s sensitivity to U.S. rate repricing also remains acute; cross-market reactions warrant close monitoring.
Given this broad spectrum of rate path scenarios, relative value trades tied to diverging monetary assumptions look increasingly viable. The compressed dispersion in central bank expectations now suggests we could see reactions becoming more violent when the data does surprise in either direction. We favour keeping options overlays in place, maintaining flexibility for sudden re-alignments.
