Insights 
VT 
Central banks’ market pricing largely remained the same, except for the Reserve Bank of New Zealand (RBNZ). The Federal Reserve saw 53 basis points with a 96% probability of no change at the next meeting.
The European Central Bank (ECB) registered 54 basis points with a 96% probability of a rate cut at the upcoming meeting. The Bank of England (BoE) showed 39 basis points with a 95% probability of no change.
Central Bank Basis Points
For the Bank of Canada (BoC), 37 basis points were observed with a 77% probability of no change. The Reserve Bank of Australia (RBA) recorded 72 basis points with a 72% likelihood of a rate cut.
RBNZ registered 29 basis points with 69% probability of no change following their policy decision. The Swiss National Bank (SNB) had 55 basis points with a 57% probability of a rate cut, with the remainder suggesting a 50 basis points cut.
Overall, the market response was stable except for the RBNZ. Traders adjusted their rate cut predictions after the RBNZ’s policy outcome was not as dovish as expected.
The existing content provides a snapshot of how monetary policy expectations are being priced in by markets, based on basis points and the associated probabilities of either a rate cut or no change at upcoming central bank meetings. It touches upon various regions, highlighting the contrast in expectations, especially focusing on how the Reserve Bank of New Zealand surprised traders by coming across as less supportive of easing policy than previously anticipated.
Market Expectations And Reactions
Where most central banks had stable pricing suggesting a high possible continuation of their current stance, the RBNZ deviated from forecast trends. There was a shift in the implied path of rates immediately following their recent decision, largely because the language and tone used did not align with the market’s hopes for softer conditions.
That divergence mattered. For traders looking at derivatives tied to short-term interest rates, this meant a sudden need to recalibrate. The expectations had leaned too far towards outright dovishness, and the adjustment that followed was symptomatic of that misalignment. Forward contracts and other rate-sensitive instruments reacted accordingly.
Looking ahead, we now have a clearer idea of which institutions are giving firmer forward guidance and where the grey areas remain. The Federal Reserve and the ECB, judging by their respective probabilities, are carrying more definition regarding next steps. Particularly, the U.S. central bank appears to be maintaining its baseline assumptions with precision. It’s unlikely markets will rerate those odds unless there is a strong reason—perhaps in the coming CPI release or new labour market readings.
In Europe, the path is mostly set. With expectations for the ECB pointing strongly toward easing, the choices for positioning are narrower. There’s less ambiguity in the narrative coming from Frankfurt. But it’s not so much about headline rates anymore—it’s more about timing follow-up moves and understanding how policy mechanics might feed into excess liquidity. Timing entries and managing roll risk on options structures will be key, especially if volatility stays subdued ahead of the summer calendar.
For the UK, the story is a little more open. Bailey and his team have not offered too much in the way of certainty. While implied rates suggest no change, we see enough fragility in trade-weighted sterling and labour slack indicators to keep rate-sensitive products on a short leash. A pause does not mean a plateau.
In Canada and Australia, pricing reflects caution balanced with growing signs of softness. The curve isn’t flat, but it’s hesitant. That’s where traders who are comfortable with shorter tenors might find opportunity. These markets are lukewarm, but if economic data swings the pendulum, those holding floating exposures might find themselves reacting faster than they’d prefer. Hedging layered delta risk may not be optional.
RBNZ, of course, requires a different lens now. The change was sharp, and the resilience of their policy stance removed some of the bearish bias that had crept into pricing. There will likely be attempts to test whether this was a one-off or the start of a steady hand approach. The kneejerk fading of dovish bets was logical, but how the curve reshapes itself over the next few sessions will tell us whether it’s sustainable.
As for the SNB, uncertainty remains. One segment of the market hints at a 50 basis point reduction—a bold assumption not fully supported by recent remarks. That split alone creates friction along the rate path, particularly in instruments maturing before year-end. Maintaining exposure here without flexibility could be costly. Unless there is clarity, and soon, this will require closer monitoring.
In short, the immediate focus lies less with bold directional calls and more with managing misalignments between positioning and policy tone. Retracing assumptions and exploiting the minor divergences could offer better outcomes than chasing rate decisions outright.
We find that expression through cross-market spreads and shorter strike payers more practical than long-dated convexity bets in the current setting. The goal isn’t to predict headlines—it’s to stay a step ahead of the shifts in conditional probability.
