What are the interest rates expectations after Powell's dovish tilt? ...Middle East

Rate cuts by year-end

Rate hikes by year-end

Traders reacted strongly to Fed Chair Powell's speech text once they saw the line “nonetheless, with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.” That was interpreted as a dovish tilt and the pricing at some point showed more than 60 bps of easing by year-end and more than 90% of probability of a September cut.

Eventually, things eased up and we got back to the levels seen just before Powell's speech text release. The focus now turns to the NFP report due next week as that's going to be key for interest rates expectations. Strong data might take the probability for a September cut towards a 50/50 chance but will certainly see a more hawkish repricing further down the curve. Soft data, on the other hand, will likely see traders increasing the dovish bets with a third cut by year-end being priced in.

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