Headline: Markets Reprice December Moves as Fed Odds Slip, BoE Cut Bets Build
Introduction: A packed week of data and central-bank commentary reshaped interest rate expectations across major economies. Traders now see a coin-flip chance of a December rate cut from the Federal Reserve, while the Bank of England’s easing odds climbed. In contrast, the Reserve Bank of Australia and other central banks look set to hold steady, reinforcing a “higher for longer” stance in several regions.
The latest market pricing shows roughly a 50% probability of a December cut from the Fed, with about 12 bps of easing priced by year-end. For Europe, the European Central Bank remains firmly on hold with only about 1 bp of year-end movement implied. The Bank of England stands out with around 19 bps of cuts priced by December, reflecting softer UK labor data. Elsewhere, small year-end adjustments are expected for the Bank of Canada (about 3 bps), the Reserve Bank of Australia (around 2 bps), the Reserve Bank of New Zealand (about 25 bps, implying a likely cut), and the Swiss National Bank (around 1 bp). The Bank of Japan remains the exception, with markets still pricing a modest 6 bps of hikes by year-end.
This week’s repricing was driven by three key developments. In the UK, a weaker jobs report boosted bets that the BoE will deliver a cut at its next policy meeting. In Australia, a robust employment release didn’t push the RBA toward tightening but did solidify expectations for a prolonged pause. In the US, remarks from a voting Fed official signaling a preference to hold rates steady helped drag December cut odds down from above 60% to roughly 50%, with a delayed reaction spilling into a broader risk-asset pullback.
Looking further out, forward curves imply cumulative easing by the end of 2026 of about 81 bps for the Fed, 7 bps for the ECB, 56 bps for the BoE, 8 bps for the BoC, 12 bps for the RBA, 40 bps for the RBNZ, and 7 bps for the SNB. For Japan, markets continue to price roughly 38 bps of cumulative tightening by the end of 2026. These figures reflect total expected moves by end-2026, not changes occurring solely in calendar year 2026.
Key Points: – Fed: About a 50% chance of a December cut; roughly 12 bps of easing priced by year-end. – BoE: Cut odds increased after soft UK jobs data; ~19 bps priced by December. – ECB/SNB: Markets imply little to no change by year-end; both near flat pricing. – RBA: Strong jobs data supports an extended pause; minimal year-end movement priced. – RBNZ: Markets lean toward a December cut, with ~25 bps priced. – BoJ: Only major central bank with hikes priced for year-end (~6 bps) and ~38 bps by end-2026.
