Rate cuts by year-end

  • Fed: 35 bps (60% probability of no change at the upcoming meeting)
  • ECB: 11 bps (92% probability of no change at the upcoming meeting)
  • BoE: 46 bps (82% probability of rate cut at the upcoming meeting)
  • BoC: 12 bps (86% probability of no change at the upcoming meeting)
  • RBA: 60 bps (85% probability of rate cut at the upcoming meeting)
  • RBNZ: 35 bps (72% probability of rate cut at the upcoming meeting)
  • SNB: 8 bps (89% probability of no change at the upcoming meeting)

Rate hikes by year-end

  • BoJ: 17 bps (86% probability of no change at the upcoming meeting)

The most notable repricing was seen with the Fed. The market trimmed bets on the September cut which is now at 40% probability. Overall, we went down to 35 bps of easing expected by year-end compared to 44 bps before the Fed decision.

We have also seen some slightly hawkish repricing for the ECB and the BoC. The former because the data continues to show improvement and there's therefore upside inflation risk, and the latter because the Bank of Canada is now more attentive to inflation after it steadily climbed back to the upper bound of their 1-3% target range.

The BoJ saw some slightly dovish repricing as Governor Ueda downplayed inflation risks and didn't sound like there's some real intention to hike rates anytime soon.

In the big picture, the main theme has been the tariffs trade since April 9 but that is now likely approaching the peak as everything got priced in and we already know that we'll either get new deadlines or deals in the 10-20% tariff range.

Another driver has been the Trump's bill, and that is also behind us. So, the next major driver should be the Fed. Economic data and Fed's guidance will likely be the next main theme for the rest of the year.

Source: Forex Live