The market is experiencing a more hawkish repricing due to increased certainty around a 10% global tariff rate. This follows the US-UK trade deal, impacting expectations for central banks worldwide.

The Federal Reserve shows a 68 bps with an 83% probability of maintaining current rates. The European Central Bank is at 56 bps, with an 89% probability of a rate cut. The Bank of England has a 56 bps mark with a 79% probability of no change.

Central Bank Strategies

The Bank of Canada is at 42 bps with a 54% probability of maintaining current rates. For the Reserve Bank of Australia, there’s a 100 bps with 99% probability of a rate cut. The Reserve Bank of New Zealand has 71 bps with a 66% likelihood of cutting rates.

Meanwhile, the Swiss National Bank stands at 35 bps with an 89% chance of a rate cut. By the year’s end, the Bank of Japan indicates a 13 bps with a 97% probability of no rate change. As the focus shifts, there is interest in the EU’s potential response to the 10% tariff floor.

This market repricing reflects an acceleration in expectations that monetary policy globally may tighten, or, at the very least, not ease as quickly as previously forecast. This reassessment links directly to growing clarity over a broad 10% global tariff, built into assumptions following recent progress on the trade agreement between Washington and London.

The current pricing of overnight index swaps suggests a comparative wavering in anticipated moves by various central banks. In the United States, Powell’s central bank continues to draw traders’ attention. Market odds imply an overwhelming lean toward holding rates steady, with a modest 68 basis points currently baked in across short-term contracts. This figure, when viewed with the attachable 83% certainty, tells us we’re relatively firm on the near-term direction for policy—essentially flatlining, at least for now.

Lagarde’s camp in Frankfurt paints a more dovish picture. With 56 basis points pointing toward accommodation and a slick 89% probability to support a policy reduction, we read this more as an echo of eurozone-specific inflation softening than a global reaction. Traders with exposure to EUR-based spreads or volatility should be adapting accordingly; the forward curve hints there’s room to play if timing is precise.

Bailey’s bank, despite being tossed between tepid growth data and sticky inflation prints over recent quarters, appears deadlocked. The 56 basis point mark—and with it, a 79% likelihood of rate inaction—signals neither UK-specific strength nor weakness, just a pause button. There’s little appetite to stir policy in one direction or the other without provoking investor nerves. Short sterling positions already appear to reflect this boredom, but tail risk pricing may tighten if CPI surprises rightward.

Macklem’s numbers feel less decided. A near coin-toss outcome—with only a 54% lean toward holding—sets Canada apart from its G7 peers. The slightly lower 42 bps reading underlines that the curve here remains catchier, and positioning around Canadian short-end futures might prove nimble in the coming weeks. If oil prices unwind any further, revisions may swing quickly.

Implications Of The Tariff Floor

Over in Sydney, the message appears almost uniform. The full 100 basis points priced coupled with near absolute conviction—99%—say there’s little to contest. Decisions appear largely pre-committed and would explain relatively low implied volatility across AUD OIS spreads. The trading opportunity isn’t in guessing the cut; it’s more in sifting the tenor where future repricings grow feasible.

Orr’s central bank in Wellington shows a bit more room for interpretation, though sentiment has clearly pivoted. A 71 basis point read isn’t shallow, and paired with a 66% chance of a cut, means this isn’t guesswork—it’s already halfway priced in. For positions across NZD cross-currency or inflation swaps, there’s space to recalibrate as forward guidance firms up.

Then comes Jordan’s institution, with an 89% tilt towards easing. The 35 basis points pinned to those expectations reflect the confidence in this call. The rate path here remains susceptible to lower-tier growth metrics and the Swissie’s strength, but traders playing Swiss franc options may view policy inertia outside the region as supporting a longer hold before hiking becomes a conversation again.

Ueda in Tokyo remains the least ambiguous. With an almost comatose 13 basis points and 97% likelihood pointing to flatlining, this is policy inertia in its purest form. It might bore, but it also gives structure — the yen typically does well with predictability. Derivatives activity around Japanese fixed income should remain quiet unless external shocks arrive.

We’re now watching how Brussels will react. The tariff’s introduction acts like a weight, not just on trade channels, but also on inflation outlooks and producer pricing models. The upcoming tone from officials—whether it’s an initial shrug or retaliation—may create divergences across sovereign rates. Futures curves might still be pricing for calm, but options on the euro tenors could soon suggest otherwise.

There’s no shortage of directions the market might take next—some linear, but many not. More than the rates themselves, it’s the conviction behind each central bank move that’s up for recalibration. We should be watching which assumptions start breaking down first.

Create your live VT Markets account and start trading now.