Markets Are Calling an End to Europe’s Interest-Rate Cuts

(Bloomberg) — Traders are increasingly betting that central banks across Europe are all but done with interest-rate cuts.

Money markets show the European Central Bank, Sweden’s Riksbank and Norway’s Norges Bank are all expected to keep rates steady when they meet tomorrow, then largely stay on hold through 2026.

Even bets on the Bank of England, expected to cut on Thursday, are still only fully pricing in one further reduction next year, despite increasing chances of another after Wednesday’s softer inflation reading.

It’s a sharp shift in market sentiment from earlier this year, when central banks across Europe were seen on a path for aggressive rate cuts into 2026. Similarly the Swiss National Bank, which moved early and cut several times, has halted alongside its peers, having taken rates down to zero.

“A lot of cuts have happened in many of these countries already — policy rates aren’t tight anymore,” said Mike Riddell, a fund manager at Fidelity International. “The big rates story of the past month is how a number of the earlier rate cutters are now expected to hike next, rather than cut.”

That’s leading traders to reassess the outlook for bond yields and currencies. German two-year rates, the benchmark for the euro area, have surged about 10 basis points this month, given the prospect of renewed tightening from the ECB.

What Bloomberg Strategists Say…

“Central banks hike when there is a risk of inflation re-accelerating or when policy is judged to be too loose. Neither condition applies right now…the balance of risks leans toward the ECB disappointing the hawks and weighing on the euro, which already screens as expensive versus rates on a number of crosses.”

—Skylar Montgomery Koning, macro strategist. For the full analysis, click here.

Meanwhile the equivalent UK yield has fallen in December. The BOE is expected to lower benchmark borrowing costs by 25 basis points to 3.75% on Thursday and once more by mid-2026.

Traders boosted those bets on Wednesday after data showed inflation came in softer than forecast in November. Money markets now see 66 basis points of cuts until the end of 2026.

“The UK is a big exception,” Riddell said, adding that a view for more BOE rate cuts could be played through shorting the pound.

Explainer: What Higher-for-Longer Bond Yields Mean for the World

©2025 Bloomberg L.P.