Global Central Bank Rate Cut Expectations Cool Across the Board as Oil Price Surge Reignites Inflation Concerns

March 2 — Middle East tensions pushing up oil prices and stoking inflation fears led currency markets on Monday to pare bets on interest rate cuts in the U.S., UK, and Eurozone. Odds the Federal Reserve will cut rates three times in 2026 have dropped from nearly 50% last week to 20%. Traders no longer expect the Bank of England (BoE) to cut rates three times this year, and have cut the probability of a March rate cut from over 80% to 60%. Odds of an European Central Bank (ECB) rate cut this year have halved, with markets now pricing in just a 5-basis-point cut. Yields on two-year government bonds — the most sensitive to monetary policy shifts — in the U.S., UK, and Germany have risen faster than long-term yields. Inflation gauges have jumped sharply, fueled by Brent crude’s biggest surge in four years. “Sustained oil price gains will have a meaningful pass-through impact on the global economy and inflation trajectory,” said Laura Cooper, Global Investment Strategist and Head of Macro Credit at Nuveen Investments. “A longer-lasting energy shock could complicate the disinflation process and push back further rate cuts.” (via FXStreet)