The market expectations for FED rate cuts have been declining this year, helping the USD in Q1, but it has reversed lower in Q2, so what are the expectations for  most major central banks this year? During Q1, it appeared like the USD was the currency to turn to, as US inflation seemed more persistent, and the US economy fared significantly better than the rest of developed economies, making it essentially the only currency to turn to, as all major currencies had nothing going for them.

The European Central Bank, Bank of England, and Bank of Canada had to deal with economic concerns during Q4 of 2023 and Q1 of this year, while the Swiss National Bank startled the market by cutting interest rates by 25 bps early on. Regarding commodity dollars, worries about the situation in China tempered NZD and AUD which broke below major support levels in April.

However, much has changed in the last two months. The economic figures from around the globe for Q1 suggest that the situation in the Eurozone, the United Kingdom, and Canada may not be as severe as it appeared. We have seen improvement in the data so they could also end up with a soft landing as the US economy did.

Nevertheless, the ECB, the BOE and the BOC are hinting at rate cuts to comin in the coming months. The difference now is that the FED may join them later, with odds of total FOMC rate reduction for 2024 going up and down after every data release. So, what are traders saying about all this in terms of central bank pricing?

Looking at the FED, ECB, BOE, RBA, RBNZ, BOJ and BOC

• US Federal Reserve: First -25 bps expected in November (80% probability in September); 44 bps of rate decreases for the year.
• European Central Bank: First -25 bps expected in June; 55 bps of rate reductions for the year.
• Bank of England: First -25 bps expected in August (95% probability); totaling 55 bps for the year.
• Swiss National Bank: Reduced interest rates by -25 bps in September (from 74% probability in June), bringing total rate decreases for the year to 33 bps.
• Bank of Canada: First -25 bps expected in July; 54 bps of rate reductions this year.
• Reserve Bank of Australia: No rate reductions expected this year; only 10 bps priced in.
• Reserve Bank of New Zealand: First -25 bps expected in October (91% probability); 45 bps of rate cuts for the year.

EUR/USD Live Chart