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HEM: Nov-25 Views & Challenges

• Pushback by Powell and peers trimmed some excessively dovish pricing, but the BoE converged down on poor data.
• The BoE should also resist pressure as underlying issues are unbroken by relatively marginal recent payback.
• We now see markets overpricing easing most in the UK. More weakness is needed to signal a threatening trend.

HEW: Cautious Committees

• Central bankers broadly delivered on expectations this week, while cautioning that changes will likely be less than markets assume. The BOJ and ECB were also cautious.
• Flash EA inflation slowed, as expected, but services and core stoked hawkish pressure, while money and credit data in the EA and UK show accommodation of inflation.
• Next week’s BoE decision is no longer priced as a forgone conclusion, but the case to cut is weak. Like its peers, the BoE should cautiously damp dovish expectations.

By Philip Rush

ECB: Less Downside From The Good Place

• Downside activity risks have reduced, while the inflation outlook holds steady, keeping the ECB in its “good place” despite an implied shift up in the balance of risks.
• Upside risks while inflation is seen settling at 2% would imply a hawkish bias, which the ECB isn’t ready to convey. But the skew may have swung within insignificant margins.
• We still expect no more ECB rate cuts this cycle. If underlying inflation fails to slow as hoped, the ECB’s balanced bias could easily break into a hawkish one in 2026.

By Philip Rush

BOJ Holds: Caution Amid Uncertainty

• The BOJ held rates at 0.5% as expected, with a 7-2 vote showing continued division. A December hike is now priced at 50-55%, down from 68% pre-Takaichi.
• Inflation forecasts are unchanged at 2.7% (FY25), 1.8% (FY26), with sluggish underlying price growth and downside economic risks delaying tightening.
• Wage sustainability and trade policy uncertainty dominate the outlook. 2026 labour talks and corporate profit trends will determine the rate path timing.