Global interest rate expectations shifted this week, with markets delivering a hawkish repricing for the Reserve Bank of Australia, the Bank of Canada and the Bank of England, while turning more dovish on the European Central Bank and the US Federal Reserve after a run of economic data and central bank speakers. These market-implied policy paths are a key reference for rates and currency markets, since shifts in expected tightening tend to feed through to bond yields and exchange rates.

Market-implied rate hikes by year-end

Last week's market pricing is available here. The 2027 figures indicate the total amount of tightening expected by the end of 2027, not how much is expected in 2027 alone. The table shows the level of expected tightening, while the hawkish and dovish shifts described below refer to how those levels moved over the week.

Hawkish repricing: RBA, BoC and BoE

Near-term rate-hike expectations moved higher for the RBA, BoC and BoE following economic data and comments from policymakers.

The probability of an RBA rate hike at the upcoming meeting increased after RBA official Hauser delivered hawkish comments suggesting a hike could come in November. He said the inflation outlook looks worse than forecast, the quarterly trimmed mean is likely to exceed expectations and capacity pressures are more elevated than assumed. Hauser also noted that forecasts are still being finalised and that he does not know for sure what the Board will decide, which is why the implied probabilities stand around 60% and not higher. With the Board's forecasts still in flux, the November meeting is the next checkpoint at which that roughly 60% implied probability will be tested against the updated outlook.

For the Bank of Canada, rate-hike expectations rose after Governor Macklem said the Bank would have to assess whether inflation would return to target on its own or whether it would need to raise interest rates to bring inflation down. That marked a more direct tightening signal than the Bank's previous message of simply monitoring inflation. Macklem said the risk of persistently high oil spreading beyond energy into the prices of other goods and services, making inflation more persistent, had increased. For context, underlying inflation has been moving lower in Canada, with the latest Trimmed-Mean CPI Y/Y falling to 1.8%, the lowest since 2020. ForexLive's analysis takes the view that a rate hike would be the wrong move given the US-Canada trade war and the softening labour market. That tension — a governor flagging a possible hike while underlying inflation prints at its lowest since 2020 — is what markets are now weighing heading into the Bank's next decision.

For the Bank of England, this week's data reinforced expectations of a rate hike at the November meeting. Wage growth came in stronger than expected, with regular pay rising 3.7% y/y versus 3.6% expected. The unemployment rate edged down to 4.7% versus 5.0% expected, with 102K jobs gained in the three months to August against 5K expected. September CPI accelerated to 3.5% from 3.1%, above the 3.4% consensus. Core CPI increased to 2.8% from 2.6%, while services inflation climbed to 3.7% from 3.4%. The composite PMI rose to 53.1 from 52.0, its highest since February, beating expectations. Business activity, new orders and employment improved, while input-cost inflation accelerated to its highest level since June, reinforcing concerns that energy-driven price pressures could become more persistent amid resilient economic activity. It is this combination of accelerating inflation and firm activity data that underpins the 97% probability of a hike at the next meeting shown in the table above.

Dovish repricing: ECB and Fed

On the ECB side, expectations repriced dovishly as growth concerns increased amid bond market woes, rising energy prices and ECB tightening. The flash PMIs for the major Eurozone economies confirmed that economic activity has slowed and expectations for the coming months have deteriorated. The 18 bps still priced in by year-end indicates the shift is toward fewer expected hikes rather than active expectations of cuts.

The Federal Reserve saw notable dovish repricing as market focus shifted from inflation fears to growth concerns amid a prolonged Middle East crisis, widening credit spreads and persistent inflationary pressures that force the Fed to tighten monetary conditions. Losses in the stock market have also been a major driver of the dovish repricing, as an AI-bubble burst would carry a huge negative wealth effect. US PMIs are still due later today and could change interest rate expectations, making them an important upcoming catalyst and the nearest test of the 92% no-change pricing at the Fed's next meeting. With the RBA and BoE both facing November decisions, the coming run of data and meetings will show whether this week's split — hawkish repricing for Australia, Canada and the UK, dovish for the eurozone and the US — holds or fades.