How have interest rate expectations changed after this week’s events?
Rate hikes by year-end
- RBNZ: 48 bps (73% probability of rate hike at the next meeting)
- ECB: 37 bps (65% probability of no change at the next meeting)
- Fed: 32 bps (78% probability of no change at the next meeting)
- BoE: 27 bps (87% probability of no change at the next meeting)
- BoJ: 23 bps (98% probability of no change at the next meeting)
- RBA: 12 bps (82% probability of no change at the next meeting)
- BoC: 10 bps (90% probability of no change at the next meeting)
- SNB: 6 bps (93% probability of no change at the next meeting)
- Last week's market pricing here
The only major events this week have been the RBNZ rate decision and the US-Iran escalation. The RBNZ delivered a hawkish hike signalling further increases at upcoming meetings. This saw traders bringing forward rate hike expectations with the probabilities for a back-to-back hike in September now standing around 73%.
On the geopolitical front, on Wednesday the US launched a series of strikes on Iran in response to Iranian attacks on three vessels in the Strait of Hormuz. Iran retaliated by bombing US bases in the region, warning of further strikes if the US continued.
It was looking like the usual limited escalation we got used to in the past months, but everything changed when Trump said to reporters at the NATO summit in Turkey that the Memorandum of Understanding was over for him and he didn’t want to engage with Iran anymore. Oil prices surged and inflation worries returned. This triggered a hawkish repricing in interest rate expectations across the board.
Later on, Trump walked back on his hawkish rhetoric and said that negotiations would continue, claiming that Iran called him to make a deal. That was enough to trigger a dovish repricing, taking us roughly back to pre-escalation conditions.
This article was written by flfeaa2662d774455a8d50fa77b791ed5f at investinglive.com.提供 MainLink：Investinglive RSS Breaking News Feed
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