Insights 
VT 
The recent events have affected interest rate expectations across major central banks. The market anticipates notable rate cuts by the US Fed and RBNZ, with a 92% probability for the Fed’s upcoming meeting decision to include a 44 bps cut and a 78% chance for the RBNZ to cut 58 bps.
Central Bank Rate Expectations
The European Central Bank and the Swiss National Bank are expected to maintain rates unchanged, with probabilities of 99% and 95%, respectively. Meanwhile, the Bank of England and the Bank of Canada have a higher probability of holding rates steady at their next meetings, with projected cuts of 7 bps and 20 bps by year-end. The Reserve Bank of Australia’s expectations involve a 30 bps cut by year-end.
Future price adjustments extend to 2026, with expected cumulative easing of 113 bps for the Fed, while the market and the Fed currently disagree on the trajectory. For the Bank of Japan, the anticipation includes an 18 bps increase by the year’s end. Despite dissents in the BoJ’s decision, the overall market adjustment remains minimal as a rate hike was anticipated. Governor Ueda has minimised the impact of differing opinions within the board.
The market is pricing in 113 basis points of Fed cuts by the end of 2026, which is significantly more dovish than the Federal Reserve’s own forecast. We saw this same disagreement back in 2024, when the market wrongly anticipated aggressive cuts that didn’t materialize until much later. With the latest US jobs report for August showing a solid 195,000 positions added, any further signs of economic strength could force traders to rapidly price out these extra cuts.
In Japan, the two dissenting votes for an immediate rate hike signal that pressure to tighten policy is building faster than anticipated. While Governor Ueda downplayed the event, we see the market’s pricing of an 18 basis point hike by year-end as a near certainty. This underlying hawkish pressure should provide a floor for the yen, especially against currencies where the central bank is leaning towards easing.
Economic Implications
The surprise 0.3% contraction in New Zealand’s second-quarter GDP has cemented expectations for rate cuts from the RBNZ. We are now pricing a 78% probability of a cut at the next meeting, with a notable chance it could be a large 50 basis point move. This makes shorting the New Zealand dollar an attractive position for the coming weeks.
For Europe, the story is one of stability, with almost no rate moves expected from the European Central Bank, the Bank of England, or the Swiss National Bank this year. Inflation reports from the Eurozone and the UK have been moving sideways, giving these central banks cover to remain on hold. This suggests traders should look at range-bound or low-volatility strategies for the euro, pound, and Swiss franc.
The Bank of Canada and Reserve Bank of Australia are leaning dovish, but their paths are less certain. Markets are pricing small cuts for both by December, making upcoming inflation and employment data critical. These are not high-conviction trades yet, and positions should be nimble as the data will dictate the next moves.
