Introduction: Interest Rates Diverge as Global Policy Cycles Decouple

As markets transition into 2026, traders are witnessing a widening divergence in expected central-bank policy paths across G10 and emerging markets. While several major central banks — including the Federal Reserve — are still priced to cut rates next year, interest-rate swaps increasingly imply that a different cohort of central banks may soon shift toward rate hikes.

This decoupling of global interest-rate cycles marks one of the most important macro themes for 2026. Diverging policy paths have significant implications for global FX markets, bond markets, relative-value trading, and equity sector leadership. Understanding how these expectations are evolving is now central to positioning across macro, multi-asset, and global equity strategies.

Diverging Paths: What Rate Markets Are Signalling for 2026

There’s an interesting dynamic evolving in market pricing for G10 and EM central-bank monetary policy paths as we head into 2026.

While the Federal Reserve (Fed) and several other central banks are still expected to lower rates next year, interest-rate swaps pricing suggests traders believe the next move for a number of others will be rate hikes, not cuts.

Clearly, the evolution of the US economy — and the Fed’s response — remains the dominant force shaping global markets. But with a new Fed Chair set to be announced in December and a rotation of FOMC voting members, conviction in pricing future Fed policy is naturally reduced.

Expectations for future interest rates remain highly dynamic, driven by economic data trends. As always, pricing 12 months ahead carries uncertainty — market expectations at this horizon are frequently wrong. Still, one theme stands out: interest-rate markets increasingly sense that several central banks may begin hiking again later in 2026, with meaningful cross-asset implications.

Central Banks Expected to Cut Rates Over the Next 12 Months

(1-year forward interest-rate swaps — implied basis points of cuts)

• Federal Reserve (Fed): –100bp
• Mexico (Banxico): –50bp
• Brazil (BCB): –282bp
• Bank of England (BoE): –64bp
• Norges Bank: –50bp

These are the markets where easing cycles are expected to continue, driven largely by slowing inflation, softer labour-market conditions, and the need to support economic momentum.

Central Banks Expected to Stay on Hold for an Extended Period

• European Central Bank (ECB): –8bp(Market view: the ECB holds steady for a long period, with a mild bias toward eventual cuts)
• Bank of Canada (BoC): –5bp

Here, markets price little change — signalling cautious central banks balancing stubborn inflation with slower growth.

Central Banks Where the Next Move Is Expected to Be a Hike

• Bank of Japan (BoJ): +52bp
• Reserve Bank of New Zealand (RBNZ): +30bp
• Reserve Bank of Australia (RBA): +10bp
• Riksbank (Sweden): +16bp

These are the standout cases where markets believe the cutting cycle is over and further policy tightening is likely in late 2026. This has major FX implications, especially for JPY, NZD, and AUD.

Summary: What the 2026 Interest-Rate Landscape Means for Traders

The global interest-rate landscape is fragmenting. While the Fed, Brazil, the UK, and others are expected to extend their cutting cycles in 2026, another group — including the BoJ, RBNZ, RBA, and Riksbank — may shift toward tightening.

This widening dispersion matters because it directly impacts:

• FX trends and relative-value opportunities
• Bond-market curves and carry trades
• Equity sector rotations and valuation spreads
• Risk appetite across global markets
• Capital flows into EM and high-yield markets

As we move into 2026, understanding these divergences — and how quickly they can shift — will be essential for traders positioning across macro, rates, and multi-asset markets.