Traders have changed their views on a potential interest rate cut by the Fed in September, but recent data hasn’t led to any major changes. Right now, there is a 98% chance of a rate cut at the next Fed meeting. For other central banks, the chances of maintaining current interest rates are also high. The European Central Bank (ECB) has a 95% probability, the Bank of England (BoE) is at 92%, the Bank of Canada (BoC) is at 67%, the Reserve Bank of Australia (RBA) is at 63%, and the Swiss National Bank (SNB) is at 82%. In contrast, the Reserve Bank of New Zealand (RBNZ) has a 90% chance of a rate cut.

Probabilities and Forecasts for Central Banks

The Bank of Japan (BoJ) has a 90% likelihood of keeping rates steady, but there could be a 14 basis points rate hike by the end of the year. The Fed’s pricing moved up to 61 basis points after the US Consumer Price Index (CPI) report came in mostly as expected. Most Federal Reserve members support a rate cut in September. However, a robust Non-Farm Payroll (NFP) report could change this outlook. Attention is now on Fed Chair Powell’s upcoming speech at the Jackson Hole Symposium, where he may either align with other central banks or stress the importance of data in decision-making. According to data from August 13, 2025, there is a strong likelihood of a Federal Reserve rate cut in September, with the market indicating a 98% chance. The latest July CPI report showed inflation steady at 3.1%, which didn’t challenge this view. The biggest risk to this outlook is the forthcoming NFP report. The US labor market has been gradually cooling in 2025, a clear slowdown from the strong job growth seen in late 2024. It would take an unexpectedly high jobs number, likely over 250,000, to make the Fed rethink the September cut.

Divergent Monetary Policies

This situation highlights a significant difference compared to European central banks. With Eurozone inflation stubbornly at 2.8%, the ECB and the Bank of England are expected to keep rates unchanged. This opens up straightforward strategies for interest rate derivatives that bet on the US dollar’s yield declining compared to the euro or pound. The Reserve Bank of New Zealand is likely to ease even more, with a 90% chance of a cut at its next meeting, as its economy slows more sharply. In contrast, the Bank of Japan is the only major central bank leaning towards raising rates. This makes trading that favors the Japanese yen against currencies from countries with clear easing policies, like the New Zealand dollar, an attractive option. All eyes are now on Fed Chair Powell’s upcoming speech at the Jackson Hole Symposium. In 2022, he used this event to signal a very aggressive approach, so markets will be on high alert. Any shift from the expected dovish tone could lead to increased volatility, creating opportunities for options traders. Create your live VT Markets account and start trading now.

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