Insights 
VT 
The market is in anticipation, awaiting further economic data and macro developments. Rate cuts predicted by the year’s end include 47 bps for the Fed (99% probability of no change at the upcoming meeting) and 25 bps for the ECB (91% probability of no change). The BoE has a 58% probability of a rate cut, anticipating 49 bps, while the BoC expects 25 bps with a 78% probability of stasis. The RBA anticipates a 70 bps cut, with a 64% chance of one occurring, and the RBNZ expects 27 bps (82% probability of no change). The SNB forecasts a 15 bps cut with a 53% likelihood.
For rate hikes, the BoJ anticipates 14 bps, with a 98% chance of no change at the next meeting. This week saw monetary policy announcements from central banks such as the BoJ, the Fed, the SNB, and the BoE. There has been little change in interest rate expectations as banks maintain a neutral outlook, pending further economic data. Consequently, market volatility has remained low during this period of uncertainty.
Current Market Conditions
Reading through the current conditions, it’s clear that market participants are mostly holding their breath, waiting for the next round of macroeconomic updates. The bulk of central banks are being cautious, not due to disagreement, but because the data hasn’t yet shifted convincingly in one direction. Most of them have reinforced their neutral position—even those previously thought more dovish or hawkish. That tells us something quite specific: they are in data-watch mode, and so should we be.
The Federal Reserve’s expected response of nearly 50 basis points in cuts by December suggests that confidence in inflation tracking lower is building, but not yet firm. We note the pricing in of a 99% chance of keeping rates on hold at the next meeting, so no surprises are expected in the very short term. Still, shorter-tenor instruments—especially around late summer—are beginning to tilt slightly more dovish, reflecting a kind of quiet positioning ahead of payroll and CPI prints.
Looking at Europe, policymakers have drawn a similar line. The European Central Bank is being priced for around 25 basis points in cuts by year-end. With over 90% probability currently assigned to keeping rates unchanged at the next gathering, it’s obvious any shift will be based squarely on incoming inflation and wage data. They appear not to want to front-run the data, which is prudent given some of the more mixed signals in recent releases.
The Bank of England is beginning to show a little more variability, and this is where positioning could get interesting. Their probability of easing sits just above half—but the magnitude priced in implies that once the first move is confirmed, more could follow. It’s not a steep curve, but it’s wider than others, so we’d keep an eye on front-end steepeners or short-dated volatility since this bank may be the next to break rank among the majors.
Global Economic Positioning
Over in Canada, they look fairly stable. With nearly an 80% chance of staying on hold next time and only 25 basis points expected by the year’s end, it’s telling that traders think the likelihood of inflation running hotter is low. Short-term overnight index swaps show an orderly expectation path, so we don’t see much imbalance in Canadian risk currently.
In contrast, Australia stands out. Not only are they pricing in 70 basis points in potential cuts, but there’s also a two-thirds chance one could come sooner than later. This is one of the more aggressive stances in developed markets. The discrepancy between projected easing and current inflation stickiness may drive two-way risk. Therefore, hedging strategies around Aussie front-end instruments may be worth reviewing if only for the asymmetric risk given recent price action.
New Zealand, meanwhile, fits between the lines. A rate cut of just under 30 basis points priced, and more than 80% chance of no change at the next meeting, reveals that local economic challenges haven’t shaken policy expectations much. The probability structure suggests slow movement, if any. It’s hard to get excited about local curve shifts unless commodity data show a clear divergence.
Switzerland’s numbers are smaller in scope. There’s barely 15 basis points priced in, with probabilities close to random distribution. The Swiss National Bank hasn’t given the market much to work with, and it’s been keeping volatility among the lowest in the G10 space. It’s probably more about currency management than rates for them, given CHF’s recent trading behaviour.
Finally, Japan remains an outlier in the other direction. They are still seen moving higher eventually, with around 14 basis points priced in. But the key number here is the 98% chance of no action in the immediate meeting, which tells us all we need to know. The Bank of Japan’s prior hike was not a shift into a hiking cycle, just a reset. Longer-run positioning hasn’t shifted that much, which means yen strength has not yet found fundamental support through the rates path.
From our perspective, the takeaway is this: central banks are not acting, but their silence speaks volumes. The probabilities give us a roadmap, but the real triggers will be economic surprises. If inflation or labour data deviate from current consensus, expect repricing to be fast. Front-end gamma may still be underpriced in some jurisdictions, particularly where rate cuts are already partially factored in. We’d suggest keeping an ear close to wage data and longer-term inflation expectations, not just headline CPI. Those will likely shape early reactivity in the rates curves going forward.
