Market-implied interest rate expectations have shifted in a dovish direction — toward pricing less tightening — across major central banks this week, a repricing driven mainly by optimism around US-Iran talks and explicit pushback from key Federal Reserve officials against October rate hike bets.

Expected rate hikes by year-end:

• RBNZ: 33 bps (52% probability of a hike at the next meeting)
• BoE: 31 bps (82% probability of a hike at the next meeting)
• BoC: 26 bps (65% probability of no change at the next meeting)
• Fed: 25 bps (76% probability of no change at the next meeting)
• BoJ: 21 bps (82% probability of no change at the next meeting)
• ECB: 19 bps (79% probability of no change at the next meeting)
• RBA: 10 bps (75% probability of no change at the next meeting)
• SNB: 4 bps (85% probability of no change at the next meeting)

Figures are expressed in basis points (bps), with 100 bps equal to one percentage point.

Expected cumulative tightening by the end of 2027:

• RBNZ: 106 bps
• BoE: 92 bps
• BoC: 110 bps
• Fed: 80 bps
• BoJ: 90 bps
• ECB: 65 bps
• RBA: 24 bps
• SNB: 56 bps

The 2027 figures indicate the total amount of tightening expected by the end of 2027, not how much is expected in 2027 alone. Even after this week's dovish shift, the pricing above implies net tightening from every major central bank on the list through 2027. Last week's market pricing is available here.

On the geopolitical side, there has been some hope of a potential phased agreement involving the reopening of the Strait of Hormuz — a critical transit route for global oil shipments — and an easing of the US economic blockade. Iran's government spokesperson said this week that Foreign Minister Araghchi presented to the cabinet "a US proposal," although no further details were given.

US President Trump, however, has also told reporters that he must decide whether to "blow Iran up or make a deal," adding that the conflict would end "very soon, one way or the other." He also mentioned that the US could resume bombing Iran after the midterm elections.

The most important catalyst, though, came from Federal Reserve officials Williams and Jefferson, who pushed back against October rate hike bets. Williams said there was "no need for urgency" after the September rate increase and suggested that, assuming the economic outlook holds, only one more hike may be appropriate later this year. Jefferson reinforced the message, saying that future adjustments should depend on more data and that policymakers may need more time before deciding on the next move.

As a result, October rate hike pricing collapsed, with the odds falling from 70% to just 25%. That leaves the economic data Fed officials have said they are waiting on as the next input into the October decision. Given the Fed's influence on global financial markets, other central banks have also seen a dovish repricing.

The ECB has seen notable dovish repricing for two key reasons. First, the rise in inflation is overwhelmingly being driven by the energy shock, while core inflation has remained relatively stable, giving the ECB some justification to wait before considering further tightening. Second, the deterioration in financial conditions and the widening French sovereign spread complicate the bank's policy. Higher borrowing costs and sovereign-risk concerns create a reason for the ECB to avoid fast tightening in financial conditions.

French bond spreads have widened sharply, while borrowing costs across Europe have increased. The spread between German and French 10-year bond yields reached its highest level since 2012, sparking fears of another possible debt crisis. That creates a difficult environment for the ECB, because further rate hikes could exacerbate sovereign financing stress. How the spread behaves from here is therefore likely to remain a key input into the ECB's next policy decisions.