Are market players setting themselves up for disappointment this week?

<p>In the last three weeks, we've seen market players move to aggressively price in rate cuts by major central banks. But this week, we finally get to see policymakers answer back to what they think of the market moves and whether or not they agree with the outlook. In other words, will we be seeing central banks push back against the market pricing?</p><p>The biggest one to watch is of course the Fed. The pricing now shows that the first rate cut is baked in for May next year. At some point last week, traders were even considering pushing that up to as early as March. But after the US jobs report on Friday, we have seen those expectations get tempered down.</p><p>That being said, there's still roughly 108 bps worth of rate cuts priced in for next year for the Fed. Is that too much? Here's a look at the Fed funds futures curve.</p><p>At this stage, it's safe to say that the Fed is done with rate hikes already. But how quickly are they going to pivot and kick start the narrative of cutting rates? I would say this month is one that is still to soon, especially as the inflation outlook is only just starting to look fairly convincing over the last one month or so.</p><p>So, it could be a case that market players are hoping for central banks to deliver a change in the narrative a little too early. If so, they might be set up for some disappointment this week if policymakers choose to stick with the status quo to wrap up the year.</p><p>That is not to say that the current pricing is completely unfounded. However, perhaps there is a scope for a pullback this week after the overly aggressive moves lately.</p>

This article was written by Justin Low at www.forexlive.com.