Central banks reprice lower: RBNZ leads with 85% hike probability while Fed wavers at 54%

What is driving the move

The dominant catalyst this week is geopolitical: reports of progress toward a potential US-Iran deal and reduced tensions in the Middle East have pushed oil prices below the psychologically important $80 threshold. According to ForexLive analysis, it is precisely this price decline that has taken the edge off inflation fears and created room for a dovish repricing across global rate markets.

The exception is the Bank of Japan. Here, market pricing has actually moved in a hawkish direction after US Treasury Secretary Bessent stressed in a CNBC interview that "it will require policy to follow up on the intervention," adding that the US would not have participated if it were not optimistic on behalf of the Japanese authorities. Japanese currency diplomat Mimura's statement about a "common understanding" with the BoJ following the intervention reinforces the impression of coordinated pressure toward faster rate hikes in Tokyo. The market is now pricing 32 bps of BoJ hikes by year-end, with a 51% probability of a hike at the next meeting — up from last week's levels.

At the other end of the spectrum, the Bank of Canada (98% probability of no change), the RBA (97%), and the SNB (96%) remain nearly locked in place. The BoE is priced for just 25 bps of hikes, but with a 79% probability of no change at the next meeting — markedly conservative positioning compared with the RBNZ and the ECB.

In a cross-market perspective, DXY weakness following the dovish Fed repricing has provided support for EM currencies, while the Japanese yen has received a temporary lift from the hawkish BoJ repricing. Bond markets have responded with falling short-term rates in the US and Europe, while Japanese JGB yields have climbed marginally.

"It will require policy to follow up on the intervention" — US Treasury Secretary Bessent on Japanese monetary policy, CNBC

It is worth noting that market pricing is now relatively divergent across G10 central banks. The RBNZ at 85% hike probability versus the BoC at 98% pause probability illustrates a macro regime in which central banks are no longer moving in lockstep, as they did during the coordinated tightening phase of 2022–2023.

Key figures

Central bank overview

RBNZ — clearly the most aggressive

The Reserve Bank of New Zealand stands out markedly. 50 bps of expected tightening by year-end, with an 85% probability of a hike as early as the next rate meeting. The New Zealand economy is showing persistent inflationary pressure, and the market sees no ambiguity about the direction of travel.

ECB — still in tightening mode

75% probability of a hike at the next ECB meeting, with 33 bps priced in in total. Despite the broad dovish repricing this week, ECB market pricing remains relatively robust — likely because eurozone inflation has not yet convincingly fallen below target.

Fed — market split down the middle

With exactly a 54% hike probability, the Fed market is effectively a coin toss. The drop in oil prices below $80 has dampened energy-driven inflation expectations, but the labor market and core inflation give the Fed no clear mandate to pause. 32 bps priced in for the remainder of 2026.

BoJ — the only hawkish move

As described above, the BoJ repricing is the only one that moved in a hawkish direction this week. 51% probability of a hike and 32 bps priced in. Coordinated signaling from Bessent and Mimura is an unusual factor to price in — the market appears to believe the follow-through will materialize.

BoE, BoC, RBA, SNB — in wait-and-see mode

The four central banks with the highest pause probabilities (79–98%) are sending a clear signal: these economies' central banks are waiting for more data. The BoC and RBA have effectively put policy on hold for the time being.

Technical picture

For rate markets, it is worth tracking 2-year US Treasuries (US2Y) as the most direct barometer of Fed expectations. The US2Y yield has pulled back this week in line with the dovish repricing — a break below support at 4.50% would indicate further repricing toward a pause.

For Japanese JGB yields, the 10-year (JGB10Y) is near technically significant levels following this week's hawkish repricing. A break above 1.20% would send a strong signal that the market is pricing in more BoJ tightening than consensus.

For EUR/USD, the dovish ECB repricing (less than last week) acts as a counterweight to Fed weakness. Technically, the pair is in a neutral range, and direction will depend on next week's data calendar. Support around 1.0820, resistance at 1.0950.

Oil price developments (Brent below $80) have a direct feedback loop into rate markets via inflation expectations. If oil holds below $80 heading into next week, it will likely continue to underpin the dovish bias in Fed and ECB pricing.

What to watch

Macro data next week:

• US CPI for July — by far the most important data point for determining whether the Fed probability moves from 54% toward 65%+ or back below 40%
• New Zealand inflation data and RBNZ communication — could confirm or challenge the 85% hike pricing
• Japanese core CPI and any new statements from BoJ Governor Ueda in the wake of Bessent's comments

Geopolitical catalysts:

• Status of US-Iran negotiations: a breakdown would send oil back toward $85–90 and quickly reverse the dovish repricing
• Further coordinated signals from Japanese financial authorities and the BoJ on the pace of rate normalization

Price levels to monitor:

• Brent crude: holding below $80 = dovish pressure continues; break above $83 = hawkish repricing
• US2Y yield: 4.50% as support — a break lower opens the door to further Fed repricing toward a pause
• JGB10Y: 1.20% as resistance — a break higher confirms a hawkish BoJ path
• EUR/USD: 1.0820 (support) and 1.0950 (resistance)

With seven of eight G10 central banks in wait-and-see mode or on a mild tightening path, the RBNZ and BoJ are the only ones with a clearly defined direction — the rest is data-dependent repricing week by week

Sources: ForexLive/InvestingLive (Giuseppe Dellamotta), Bloomberg rate futures, Reuters market pricing data