Traders are increasingly anticipating rate cuts from major central banks amid recessionary concerns. Expectations for easing measures have risen rapidly due to disappointing tariff announcements.
By year-end, market forecasts are as follows: the Fed is expected to cut rates by 102 basis points with a 61% chance of no change at the next meeting, while the ECB may reduce rates by 72 bps (75% chance). The Bank of England and the Reserve Bank of Australia are projected for cuts of 75 bps (86% chance) and 99 bps (88% chance), respectively.
Bank Of Canada And Other Forecasts
Additional forecasts include the Bank of Canada at 69 bps (55% chance), the Reserve Bank of New Zealand at 89 bps (97% chance), and the Swiss National Bank seeing a modest 21 bps cut with a 56% chance of holding steady. In contrast, the Bank of Japan is expected to make no changes.
Key market events today include the US non-farm payroll report and statements from Fed Chair Powell, which are likely to influence sentiment. Powell’s tone may indicate the Fed’s stance on supporting growth, affecting forecasts for rate cuts if he signals concerns about economic risks.
The current state of the interest rate outlook reflects a shift towards monetary accommodation across most major economies, largely in response to weakening global economic indicators and unsatisfactory policy developments. The muted reaction to recent tariff moves has compounded worries, driving up expectations that policymakers might lean into rate reductions sooner and more deeply than originally projected.
Market participants now see the US central bank delivering just over a full percentage point in reductions by the end of the year, though the next meeting appears less certain. With a 61% probability of maintaining current levels, short-term rate products may continue to reflect smaller intraday swings until further clarity surfaces. Across the Atlantic, some of the same tones are surfacing, but with slightly less conviction behind the scale and timing of action.
European Market Expectations
Over in Europe, traders are assigning elevated odds to policy adjustments aligning directionally with the US, albeit at a lighter pace. The emphasis on downside surprises in inflation prints and weak industrial performance may be pushing assumptions that central banking figures will err on the side of caution, trimming benchmark rates in the months ahead.
The expectations priced in for rate movements in the UK and Australia now eclipse three 25-basis-point cuts by year-end. Given the relatively high probability attached to this path, one might view it as the market anchoring itself quite firmly to the idea of a more supportive monetary environment in both regions. That said, surprises in labour or inflation data from either jurisdiction could introduce more path dependency than is presently apparent.
Meanwhile, Powell’s public remarks today hold potential for fresh momentum. Not necessarily because he might say something particularly new, but because his tone and phrasing tend to reinforce or unsettle existing assumptions. We’ll be paying close attention to any emphasis on growth risks, which would prompt readjustments in the path for future policy.
Canada and New Zealand face similar pressures. The data has been pointing to softness, with pricing in both nations already implying material loosening. The Canadian figure carries more uncertainty, reflecting either data divergence or less commitment from authorities, while the New Zealand outlook seems almost fully locked in. Local fixed-income products have already absorbed much of this story, leaving limited room for additional surprises barring a sharp change in economic conditions.
Switzerland remains cautious, and rightly so. A relatively shallow approach to cutting rates is aligned with the structure of its economic cycle. Meanwhile, Japan continues to stand apart from broader global patterns. With near-zero expectations for change there, volatility linked to yen sensitivity or bond markets is more likely to stem from external news or risk sentiment than from domestic rate speculations.
With that in mind, derivative exposures should be structured to emphasise relative policy divergence while respecting the boundaries of current market pricing. Volatility risk remains highest around policy meeting intervals and key data releases. We suggest tightening focus on calendar spreads and directional skews where pricing feels too skewed in one direction. When Powell speaks, it’s not just the message—it’s the nuance that resettles expectations almost immediately. We’ll be watching for any tilt, however slight.
