Markets ramp up bets on December Fed cut as RBNZ signals easing is over; BoJ still seen nudging rates higher
Traders boosted wagers on a year-end Federal Reserve rate cut while dialing back the odds of further easing from New Zealand, sharpening FX and rates divergences into the final weeks of the year.
Key Points
- Money markets price roughly 20 bps of Fed easing by year-end, with about a 79% chance of a cut at the next meeting.
- RBNZ guidance curbs expectations for additional cuts, prompting a hawkish repricing of 2026 paths.
- BoE seen cutting near term (≈23 bps priced) while ECB, RBA, BoC and SNB are largely priced to hold.
- BoJ remains the outlier on tightening: about 8 bps of hikes are priced by year-end, and ~45 bps by end-2026.
- Upcoming FOMC, NFP, and CPI will be critical catalysts for USD rates volatility and FX direction.
Repricing across the majors
United States (Fed)
Traders leaned further into a December rate cut after dovish-leaning remarks from NY Fed President John Williams and softer private payrolls. Overnight index swaps now embed about 20 bps of easing by year-end and assign roughly a 79% probability to a cut at the next meeting. The curve reflects about 93 bps of cumulative easing by end-2026. Follow-through will hinge on the FOMC decision and subsequent NFP/CPI prints.
Eurozone (ECB)
Pricing implies negligible near-term moves, with about 1 bp of year-end adjustment and a 97% probability of no change at the upcoming meeting. By end-2026, markets pencil in roughly 8 bps of cumulative easing.
United Kingdom (BoE)
The UK front end continues to lean toward easing: about 23 bps of cuts are priced by year-end, with a 94% probability of a cut at the next decision. By end-2026, traders see around 64 bps of cumulative easing.
Canada (BoC)
The BoC is priced to hold near term, with around 3 bps of year-end adjustment and an 84% probability of no change at the next meeting. Cumulative easing by end-2026 stands near 12 bps.
Australia (RBA)
Markets keep the RBA on hold into year-end: around 1 bp is priced, with a 97% probability of no move at the next meeting. End-2026 cumulative easing is roughly 8 bps.
New Zealand (RBNZ)
The RBNZ signaled the easing cycle is effectively done for now, shrinking the probability of another cut and pushing a hawkish reassessment of the outer years. Markets now imply around 16 bps of cumulative easing by end-2026 and a 91% probability of no change at the next meeting.
Switzerland (SNB)
Near-term odds favor a hold, with only 2 bps priced by year-end and a 94% probability of no move. Cumulative easing by end-2026 is near 7 bps.
Japan (BoJ)
The BoJ remains a gentle outlier on tightening: swaps price about 8 bps of hikes by year-end, while putting the chance of no change at the upcoming meeting near 66%. By end-2026, the curve suggests around 45 bps of cumulative hikes.
FX and rates takeaways
– A firmer conviction in a December Fed cut tends to pressure the dollar at the margin and anchor front-end Treasury yields, though liquidity and year-end dynamics can amplify moves.
– The RBNZ pivot has provided support to NZD by curbing expectations for further easing, while AUD remains more tethered to global growth and China-sensitive flows given the RBA’s steady stance.
– With the BoJ still on a cautious tightening path, USD/JPY remains highly sensitive to shifts in US front-end yields and any upside surprises in Japanese wage/inflation data.
– Sterling’s rates advantage is eroding as BoE cuts are repriced closer, leaving GBP more reactive to domestic growth and services inflation surprises.
What’s next
Event risk is concentrated in the FOMC decision and subsequent US macro updates (NFP and CPI). A cut paired with soft inflation would validate current pricing and keep the USD on the defensive, while a firmer inflation pulse or a hawkish Fed communication could quickly re-steepen the front end and buoy the dollar. Into 2026, the dispersion between a still-tightening BoJ and mostly steady-to-easing Western central banks remains a key cross-asset theme, BPayNews analysis shows.
FAQ
What are markets pricing for the Fed into year-end?
Roughly 20 bps of easing with about a 79% probability of a cut at the next meeting. By end-2026, the curve implies around 93 bps of cumulative easing.
How did the RBNZ shift affect expectations?
Guidance indicating the end of the easing cycle reduced the odds of another near-term cut and trimmed cumulative 2026 easing to about 16 bps, supporting NZD sentiment.
Which central banks are expected to hold rates near term?
ECB, RBA, BoC and SNB are largely priced to hold at their next meetings, with probabilities in the mid-80s to high-90s percent range.
Is the Bank of England expected to cut soon?
Yes. Markets price roughly 23 bps of easing by year-end and a 94% chance of a cut at the next decision, with about 64 bps of cumulative easing by end-2026.
What is priced for the Bank of Japan?
About 8 bps of hikes by year-end, even as the next meeting carries a two-thirds chance of no change. Into 2026, markets see roughly 45 bps of cumulative tightening.
What data could swing FX and rates pricing next?
The FOMC decision, followed by US nonfarm payrolls and CPI. Surprises on employment or inflation can meaningfully shift front-end yields, swap-implied probabilities, and USD direction.
