Markets Tilt Dovish on Fed as RBNZ Signals Pause; Divergence Deepens Across G10 Rates
Traders lifted odds of a December rate cut from the Federal Reserve while paring expectations for further easing in New Zealand, sharpening policy divergence that will steer FX and global risk appetite into year-end.
Key points
- Futures now imply roughly 20 bps of Fed easing by year-end, with about a 79% chance of a December cut; cumulative easing priced by end-2026 sits near 93 bps.
- RBNZ guidance dampened prospects for additional cuts, pushing a “hawkish” shift into 2026 pricing (about 16 bps of cumulative easing now implied).
- BoE is seen delivering around 23 bps of cuts by year-end with strong odds of a move at the next meeting; ECB, BoC, RBA and SNB are largely priced to hold.
- BoJ remains the sole G10 central bank with hikes priced this year (around 8 bps), with roughly two additional 10 bp moves implied through 2026.
- Soft U.S. labor indicators (weak ADP payrolls, steady jobless claims) and recent remarks from Fed’s Williams catalyzed the dovish repricing; next inflection points are the FOMC decision, NFP and CPI.
Where markets are priced now
Year-end expectations and cumulative moves by end-2026
- Federal Reserve: ~20 bps of cuts priced by year-end; ~79% probability of a December move; ~93 bps of cumulative easing by end-2026.
- European Central Bank: ~1 bp by year-end; market implies a very high probability of no change at the next meeting; ~8 bps cumulative by end-2026.
- Bank of England: ~23 bps of cuts by year-end; high probability of a cut at the next meeting; ~64 bps cumulative by end-2026.
- Bank of Canada: ~3 bps by year-end; market leans toward no change next meeting; ~12 bps cumulative by end-2026.
- Reserve Bank of Australia: ~1 bp by year-end with a very high chance of no change next meeting; ~8 bps cumulative by end-2026.
- Reserve Bank of New Zealand: market now implies a pause near term; ~16 bps of cumulative easing by end-2026.
- Swiss National Bank: ~2 bps by year-end with a high likelihood of no change next meeting; ~7 bps cumulative by end-2026.
- Bank of Japan: ~8 bps of hikes by year-end; ~45 bps cumulative tightening by end-2026.
What’s driving the repricing
The pivot toward a December Fed cut gathered momentum after New York Fed President John Williams signaled openness to easing if the data cooperate. Softer U.S. labor indicators reinforced the move, easing front-end yields and nudging the dollar off recent highs as rate-sensitive sectors outperformed. The next leg hinges on the FOMC statement and dot plot, followed by NFP and CPI—any upside surprises could quickly compress cut odds and re-steepen the front end.
In New Zealand, the RBNZ suggested the easing cycle may be done for now, unwinding expectations for another near-term cut and firming NZD crosses. That “higher-for-longer” skew in an otherwise easing-biased G10 backdrop sharpened relative-rate support for the kiwi versus AUD and EUR.
FX and cross-asset takeaways
- USD: Softer at the margins as front-end U.S. yields slip; most sensitive to labor and inflation surprises that could reset December odds.
- NZD: Supported as markets back away from additional RBNZ cuts; relative rate spreads favor NZD on dips.
- JPY: Bid on days when global yields fall and as BoJ normalization remains in play, though the pace still depends on incoming domestic inflation and wages.
- Rates/Stocks: Dovish Fed repricing typically supports duration and risk assets; breadth of the move will be dictated by the FOMC tone and data follow-through.
What to watch next
– FOMC decision and guidance on balance sheet and reaction function.
– U.S. nonfarm payrolls and CPI for confirmation of cooling momentum.
– RBNZ commentary for any shift back toward easing if growth slows.
– BoJ signals on the pace and structure of normalization.
FAQ
How likely is a December Fed cut now?
Futures imply about a 79% probability of a December cut, with roughly 20 bps of easing priced by year-end and around 93 bps in total by end-2026. Upcoming NFP and CPI will be pivotal.
Why did RBNZ pricing turn more hawkish?
The RBNZ indicated the easing cycle may be complete for now. Markets scaled back expectations for another near-term cut and now price only about 16 bps of cumulative easing by end-2026.
Which central banks are seen on hold near term?
Pricing leans toward no change at the ECB, BoC, RBA and SNB at their upcoming meetings, while the BoE is seen cutting and the Fed is now heavily priced to ease in December.
Is the BoJ still an outlier?
Yes. Markets still price BoJ tightening—around 8 bps by year-end and roughly 45 bps by end-2026—as it cautiously normalizes policy, keeping USD/JPY sensitive to relative yield shifts.
What does this mean for major FX pairs?
A gentler Fed path tends to cap the dollar, supporting EUR/USD and GBP/USD on dips, while NZD gains on reduced easing risk. USD/JPY remains two-way: softer U.S. yields help yen, but BoJ’s gradualism tempers the move.
What could upend the current pricing?
Stronger-than-expected U.S. inflation or jobs could reflate front-end yields and curb cut odds. Conversely, a softer growth and inflation mix would validate the dovish Fed path and deepen USD softness. Policy surprises from the RBNZ or BoJ would also jolt FX.
This analysis was prepared for readers of BPayNews to navigate shifting rate paths and their FX implications.
Last updated on November 30th, 2025 at 06:31 am
