Global central banks shift: The Fed’s September interest rate cut window appears, the ECB eases again, and New Zealand remains on hold - Global interest rate outlook for the second half of 2025

Federal Reserve: Dovish turning point amid internal divisions

The minutes of the June 17-18 meeting were seen by the market as a "signpost" for the September rate cut script before they were released today (July 9). The minutes will reveal the committee members' true views on the four consecutive declines in inflation and the Trump administration's new tariffs. According to a report by Barron's and Reuters, at least three voting members have publicly mentioned the option of "two rate cuts this year" after the meeting, and traders have priced in a 90% chance of no action at the end of July meeting, and the probability of a rate cut in September has risen to 63%. barrons.com reuters.com

Quick Facts

• Current interest rate range : 4.25%-4.50%

• Key signal : Pay attention to the lagged impact of tariffs on the inflation chain after August; employment growth rate is still a "threshold"

• Market pricing : Two-year Treasury yields have fallen 37 bp from their May highs, and the curve is flattening again

ECB: "Technical pause" after second rate cut

On June 4, the ECB cut its three major interest rates for the second time this year, by -25 bp each, and reiterated its "symmetric 2% target" in its month-end strategic review.
Although Lagarde hinted that there might be "pause of action" in the summer, the latest forecasts show that eurozone inflation may fall below 2% in 2025. Coupled with the intensification of US-EU trade frictions, European government bond yields have hit a 16-month low.

Deep analysis

• The downward trend of core inflation resonates with the energy base effect

• The progress of repairing net interest margin of European bank stocks may be further compressed due to further easing

• Imported deflation trend of euro-denominated commodities is worth paying attention to

Oceania trend: Reserve Bank of New Zealand remains on hold

Wellington decided this morning to maintain the official cash rate (OCR) at 3.25%, but for the first time included "the next step may be a downward adjustment" in the text of the statement.
This is in contrast to the "stay high" tone of the Reserve Bank of Australia a week ago, showing that the tolerance of the central bank in the southern hemisphere for the local economic slowdown is rapidly decreasing. New Zealand's ANZ business confidence index in June has fallen to -22, a 20-month low.

Outlook : If dairy export prices continue to fall in the third quarter, NZD/USD may test the 0.57 support again, and foreign bond allocations will face the dual pressure of exchange gains and losses.

Synchronization and divergence of global asset prices

• Bonds : The 10-year yield spread between the U.S. and Germany has narrowed by 18 bp from its high in May, as the market re-priced the pace of rate cuts to be “faster in the U.S. and slower in Europe.”

• Foreign exchange : The US dollar index fluctuated in a box due to risk aversion and mismatch in policy expectations; the euro was constrained at 1.09 in the short term, but may see a technical rebound at the end of the quarter.

• Stock market : Technology stocks continued to hit highs under the dual logic of "low interest rates + AI capital expenditures", but the performance of the financial sector was differentiated, and the profit outlook of European and American banks continued to be under pressure.

Risk Points and Investor Action Framework

1. Policy communication failure : If the FOMC statement at the end of July is unexpectedly hawkish, market volatility may be amplified.

2. Tariff spillover : If the US-EU trade friction escalates, it will have a secondary impact on the global manufacturing PMI and corporate profits.

3. Financial stability : Too rapid an interest rate switch may push up high-yield bond leverage, and we need to pay attention to rising default rates.

suggestion

• Bond duration management : Lock in downside through 2-5 year USD interest rate swaps;

• Foreign exchange hedging : Euro longs can combine options to build a 1.08-1.12 wide butterfly strategy;

• Equity : Select multinational technology leaders with strong profit resilience and a high proportion of US dollar-denominated revenue.

in conclusion

From the United States to Europe to Oceania, major central banks are moving towards a resonant range of further policy easing, but the paths and intensity are not consistent.
Investors should be alert: although the falling interest rate is good for valuation, trade barriers and the shadow of deflation are rising simultaneously. If you want to "sit on the fence", the core idea in the second half of the year should be flexible duration + strong dollar assets + structured hedging , grasping the interest rate spread and volatility dividends in the early stage of easing, while leaving room for defense for possible macro misjudgments.

Written by Jonathan Kelly (Senior Financial Reporter based in London