Towards the end of last year, it was a case of traders being overly aggressive in pricing in rate cuts. And in the first two months of this year, we saw that pricing course correct a fair bit. But where does that leave us now? The SNB has already surprised with action and there are perhaps rate cuts coming in Q2. So, let’s take stock of the situation.

Here was how things looked like at the end of December, in terms of what is priced in for the whole of 2024:

• Federal Reserve: -156 bps (first -25 bps in March)
• European Central Bank: -161 bps (first -25 bps in April)
• Bank of England: -141 bps (first -25 bps in May)
• Swiss National Bank: -66 bps (first -25 bps in June)
• Bank of Canada: -120 bps (first -25 bps in April)
• Reserve Bank of Australia: -53 bps (first -25 bps in June)
• Reserve Bank of New Zealand: -93 bps (first -25 bps in May)

And this is how things are playing out right now:

• Federal Reserve: -58 bps (first -25 bps in July)
• European Central Bank: -89 bps (first full -25 bps in July, although June is 96% priced in)
• Bank of England: -70 bps (first -25 bps in August)
• Swiss National Bank: -45 bps (second -25 bps in September)
• Bank of Canada: -69 bps (first -25 bps in July)
• Reserve Bank of Australia: -38 bps (first full -25 bps in November, although September is 97% priced in)
• Reserve Bank of New Zealand: -74 bps (first -25 bps in August)

Those are definitely considerable shifts in pricing when compared to the end of last year. But during the course of the first three months, they might’ve been hardly felt. That especially if you’re looking at risk trades and stocks.

The dollar is one of the beneficiaries though, especially in March. That considering US economic developments might warrant the Fed to hold rates higher for longer compared to most other major economies. The odds of a June move for the Fed are only roughly 68% now. If anything, it speaks to the uncertainty in play as opposed to market pricing for the ECB.

In that lieu, we could be starting to see some diverging trade opportunities from hereon. The SNB has already kick started the race to cut rates. And we’re already seeing what that is doing to the Swiss franc. So, the winning currency now will be the one whose central bank will be most resistant in conforming to the above rate cut expectations.

This article was written by Justin Low at www.forexlive.com.