Central Banks Signal Diverging Rate Paths: USD Faces Pressure

Market expectations show significant divergence in central bank rate cut pricing for the remainder of 2025, with the RBA leading at 72 basis points of cuts expected, followed by the SNB at 55 bps and ECB at 54 bps. The Fed pricing stands at 53 bps, while the BoE and BoC show more modest expectations at 39 and 37 bps respectively. Notably, the RBNZ saw reduced rate cut expectations (29 bps) after delivering a less dovish policy stance than anticipated. The BoJ remains the outlier with 18 bps of rate hikes priced in. This divergence is creating opportunities for carry trades, particularly favoring commodity currencies against the euro and Swiss franc. The relatively aggressive rate cut expectations for major central banks suggest continued pressure on their respective currencies, with USD likely to face headwinds as Fed easing expectations remain elevated.