Sudden change in wind direction! Global traders from Europe and the US to Australia are betting on the end of the interest rate cut narrative

The Zhitong Finance App learned that from Australia and Europe to the US, traders are increasingly betting that the pace of monetary policy easing by central banks around the world will slow down or even completely stop.

Current pricing in the currency market shows that the market expects that the ECB will hardly cut interest rates further, and even believes that there is a possibility that interest rates will be raised by about 30% by the end of 2026. In Australia, Federal Reserve Chairman Bullock ruled out the possibility of further policy relaxation on Tuesday, leading to the pricing of interest rate swap contracts showing that the market expects the Reserve Bank of Australia to raise interest rates twice by the end of next year, each time by a margin of 25 basis points.

The market also has clear expectations about the Bank of Japan's policy direction: traders are almost certain that the Bank of Japan will raise the benchmark interest rate by 25 basis points to 0.75% next week, and it is expected that there will be at least one more rate hike next year.

Even in the US, which is widely predicted to start cutting interest rates this month, its policy outlook for 2026 is changing. Traders currently expect that the Federal Reserve will cut interest rates only twice next year, down from the three predicted at the end of last month.

Jim Reid, head of global macro research at Deutsche Bank, stated in a client report: “One significant trend is that market pricing in more and more economies already sees interest rate hikes as the next monetary policy trend. If the US also enters this group, the price of risk assets and the overall economic outlook for next year will undoubtedly be completely disrupted.”

The trigger for the current market's reassessment of the monetary policy path stemmed from a statement made by an ECB official on Monday. ECB Executive Committee member Isabel Schnabel said that she is open to the next rate hike. This statement directly boosts the market's bets on the ECB's interest rate hike next year.

The direct impact of market repricing is likely to be an increase in bond yields. Although US, European, British and Japanese treasury yields fell slightly on Tuesday, overall, treasury bond yields in all major economies have risen sharply since this month.

However, in the short term, the monetary policy decision to be announced by the Federal Reserve on Wednesday local time may limit the room for further fluctuations in yields. In addition, the US side will also release October job vacancy data later on Tuesday.

Mizuho International strategist Evelyne Gomez-Liechtenstein said, “If the data released this time is weak, it may be enough to push the US dollar interest rate to recover some of its losses over the past few trading days.”