Traders are increasing expectations for rate cuts by the European Central Bank (ECB) after the announcement of a 25% tariff on auto imports by Trump. This has caused a rise in anticipated easing from 51 basis points to 56 basis points for the ECB.
Current market expectations include: Fed at 62 basis points (85% probability of no change), ECB at 56 basis points (82% probability of a rate cut), BoE at 45 basis points (56% probability of a rate cut), and BoC at 41 basis points (69% probability of no change).
Central Bank Rate Expectations
Further, RBA stands at 63 basis points (88% probability of no change), RBNZ at 59 basis points (63% probability of a rate cut), SNB at 8 basis points (79% probability of no change), and BoJ at 35 basis points (71% probability of no change).
The tariff announcement has tightened rate cut expectations across multiple central banks, especially the ECB, reflecting concerns about the economic impact and necessary monetary policy adjustments.
The expectations for rate reductions are shifting rapidly in response to the latest developments. With the announcement of a 25% tariff on auto imports from the United States, the projected monetary policy outlook for the European Central Bank has adjusted notably. Prior to the tariff, the anticipated easing stood at 51 basis points. Now, that figure has climbed to 56 basis points, reflecting increased confidence in an upcoming adjustment. This move suggests that market participants are pricing in growing risks to economic stability.
The broader picture across central banks indicates diverging expectations. The Federal Reserve currently stands at an expected 62 basis points of easing, with the overwhelming likelihood—85%—indicating no immediate shift. The Bank of England, meanwhile, is priced at 45 basis points, albeit with a lower probability—just 56%—of an actual reduction. The Bank of Canada, at 41 basis points, sees a 69% chance of rates remaining unchanged. This variation between central banks illustrates differing estimations of economic strain and monetary response.
Global Monetary Policy Outlook
Looking beyond North America and Europe, expectations in the Asia-Pacific region also offer insight into how policy decisions may unfold. The Reserve Bank of Australia holds at 63 basis points, with a strong 88% likelihood of no movement, while the Reserve Bank of New Zealand reflects a more divided view at 59 basis points, with markets attaching a 63% probability to a cut. The Swiss National Bank barely registers changes, with just 8 basis points of expected easing and a 79% chance of remaining on hold. Meanwhile, the Bank of Japan, which has pursued ultra-loose monetary policies for years, is priced for 35 basis points of easing, with a 71% probability of remaining steady.
The announcement of tariffs has tightened expectations around monetary decisions, primarily for the ECB. The adjustment in market sentiment demonstrates concern over potential weakness in demand and the actions policymakers may need to take to counteract these pressures. Those watching central banks closely must assess whether these pricing changes will continue in the coming weeks.
