Major FX Pairs Face Volatility as Global Rate Cut Expectations Shift

Interest rate expectations have undergone significant revisions this week, with markets pricing in 71 basis points of Fed cuts by year-end, substantially higher than other major central banks. The ECB shows minimal easing expectations at just 4 bps, while the BoE and BoC anticipate 9 bps and 43 bps respectively. This divergence is creating notable pressure on USD pairs, with EUR/USD and GBP/USD likely to face headwinds as rate differentials narrow. The RBA and RBNZ show moderate easing expectations at 30-38 bps, potentially weakening AUD/USD and NZD/USD. Conversely, the BoJ remains the outlier with 16 bps of hikes expected, supporting JPY strength across major pairs. Looking toward 2026, cumulative easing expectations reach 145 bps for the Fed versus just 10 bps for the ECB, suggesting long-term dollar weakness. Traders should monitor upcoming central bank communications for potential shifts in these expectations.