The recent UK Consumer Price Index (CPI) figures fell below expectations, prompting traders to raise the likelihood of a 25 basis point rate cut at the Bank of England’s May meeting. A subsequent CPI report is scheduled before this decision.
After a weak US consumer confidence report, traders adjusted their easing predictions from 59 basis points to 62 basis points. Current probabilities for various central banks indicate an 85% chance of no change at the Fed, a 78% chance of a rate cut at the ECB, and a 54% chance of a cut from the BoE.
Central Bank Expectations
Revisions also occurred for the Bank of Canada, dropping from 46 basis points to 44 basis points following positive remarks about Canada and Mexico. The Reserve Bank of Australia’s easing expectation moved from 65 basis points to 63 basis points due to recent tax cuts.
For the Reserve Bank of New Zealand, the expectation stands at 60 basis points, with a 65% probability of a rate cut. The Swiss National Bank shows a 7 basis point expectation with an 80% probability of no change, while the Bank of Japan has a 36 basis point forecast with a 72% probability of no change at their next meeting.
The latest inflation data in the UK came in lower than analysts had projected, leading to an increase in expectations that the Bank of England will lower interest rates by 25 basis points at its May meeting. Traders have already started factoring in this possibility, though a final inflation report before the decision may alter those assumptions. Markets will be watching that data closely, as it could either solidify or weaken the growing belief that easing will occur.
Over in the United States, weaker consumer sentiment data led investors to adjust their anticipated rate cuts slightly higher. Expectations for total easing by the Federal Reserve in 2024 were revised from 59 to 62 basis points, indicating some marginal softening in economic confidence. However, current pricing still favours the central bank leaving rates unchanged at its next meeting, with an 85% probability assigned to a hold.
On the European side, traders see far stronger potential for a rate cut from the European Central Bank, estimating a 78% chance that policymakers will opt to reduce borrowing costs. For the Bank of England, expectations are more evenly divided, with just over half believing a cut is forthcoming. That contrasts with the Federal Reserve, where rate cuts appear less likely in the near term.
The Bank of Canada also saw a slight adjustment in estimates, with expectations on total easing this cycle falling by two basis points after positive economic commentary regarding North American trade conditions. While the shift was minor, it reflects some hesitancy about how quickly rate reductions might occur.
Meanwhile, Australia’s central bank experienced a similar revision. Analysts trimmed their forecast for rate reductions by two basis points, reacting to the effects of newly introduced tax reductions. Lower taxes may provide temporary relief to consumers, potentially reducing the urgency for monetary easing in the immediate future.
Global Economic Outlook
In New Zealand, the outlook remains relatively stable, with traders pricing in 60 basis points of cuts this year and assigning a 65% probability to the first of those happening soon. Confidence in a change from the Swiss National Bank is considerably lower. The probability of holding rates steady sits at 80%, with just a slight expectation of any downward adjustment.
Japan presents a different situation, with a forecast of 36 basis points in total easing. That being said, traders still lean towards stability at the next policy meeting, assigning a 72% probability that rates remain unchanged.
Movements over the coming weeks will depend on further economic data and whether fresh indicators reinforce or weaken these projections. Pricing across various central banks is already reacting to recent reports, and any surprises could alter rate expectations once again.
