Rate hikes by year-end

• BoE: 35 bps (86% probability of rate hike at the next meeting)

2027: 105 bps

• RBNZ: 33 bps (59% probability of rate hike at the next meeting)

2027: 109 bps

• Fed: 25 bps (80% probability of no change at the next meeting)

2027: 80 bps

• BoC: 21 bps (74% probability of no change at the next meeting)

2027: 105 bps

• ECB: 21 bps (81% probability of no change at the next meeting)

2027: 69 bps

• BoJ: 18 bps (92% probability of no change at the next meeting)

2027: 90 bps

• RBA: 12 bps (74% probability of no change at the next meeting)

2027: 24 bps

• SNB: 7 bps (72% probability of no change at the next meeting)

2027: 59 bps

• Last week’s market pricing here. The 2027 pricing indicates the total amount of tigthening expected by the end of 2027, not how much is expected in 2027 alone.

Interest rate expectations have remained largely unchanged across most major central banks this week, as the lack of major economic and policy developments kept traders from making significant adjustments to their outlook.

The main source of volatility came from geopolitical developments, with reports that Trump was weighing military strikes against Iran ahead of the midterm elections triggering a slightly hawkish repricing. However, yesterday’s comments on Truth Social, in which Trump ruled out attacks before the midterms and pointed to productive discussions with Tehran, helped reverse some of that move as oil prices pulled back.

The most notable repricing came from Canada following today’s much weaker than expected employment report. Employment fell by 68.3K in September, compared with expectations for a 9.2K increase. The data reduces the pressure on the Bank of Canada to tighten policy. As a result, the probability of a rate hike at the October meeting dropped to around 21%, down from 42% before the release.

Looking ahead, geopolitical developments will remain a key driver of interest rate expectations, with markets awaiting Iran’s response to US’s proposal over the next few days. A positive diplomatic outcome could push oil prices lower and trigger further dovish repricing across central banks, while renewed tensions could keep the hawkish expectations intact.

Beyond geopolitics, the focus will turn to next week’s US CPI report, which could influence expectations for the Federal Reserve and spill over into global rate pricing. A hotter than expected report could increase October rate hike probabilities, while soft data would reinforce the case for a more patient approach.

This article was written by Giuseppe Dellamotta at investinglive.com.