In recent weeks, global central banks have captured the attention of financial markets as discussions and speculations abound regarding the potential onset of a rate-cutting waveToday, the Swiss National Bank (SNB) and the European Central Bank (ECB) both announced reductions in their interest rates, marking a significant shift in monetary policyNotably, the SNB's announcement exceeded market expectations, introducing new uncertainties and waves of change in the global financial landscapeAs investors await the Federal Reserve's upcoming interest rate meeting next week, the consensus suggests that a third rate cut this year is nearly inevitable, becoming a fixture of market sentiment.

The ECB has officially declared a 25 basis point drop in all three of its key interest rates, with the deposit rate now set at 3.00%, the marginal lending rate at 3.40%, and the main refinancing operations rate at 3.15%. This decision comes after careful consideration, and it marks the fourth time this year that the ECB has enacted a rate cut since previously announcing a reduction in June

The ECB's move aligns with market expectations, paving the way for potential further reductions anticipated by 2025, where traders foresee a cumulative decrease of an additional 127 basis points.

Following the ECB's announcement, trading activity reflected a brief spike in the euro against the dollar before retreating, settling around 1.0485 at approximately 21:35 Beijing timeMeanwhile, the yield on Germany's two-year government bonds rebounded to retain a stable rate of 1.95%. Such fluctuations indicate a complex interpretation by market participants, who weigh the implications of the rate cut on economic growth, inflation forecasts, currency volatility, and asset allocation strategies.

Shifting focus to the Swiss National Bank, earlier in the day, the SNB revealed a policy interest rate of 0.5% for December, contrary to the market's expectation of 0.75% and down from the previous rate of 1%. This significant move indicates that the benchmark rate is now only 50 basis points away from zero

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Importantly, this rate cut is the most substantial adjustment made by the SNB in the past decade.

The SNB's reduction represents its fourth consecutive decrease, with a prior market consensus anticipating a 25 basis point cutThe actual cut, however, surpassed expectations, catching many off guardAccording to the SNB's announcement, this measure is primarily prompted by a decline in potential inflationary pressuresNonetheless, the central bank underscored its commitment to closely monitor evolving economic conditions and maintain flexibility in its monetary policy to keep inflation aligned with price stability in the medium term.

In the wake of the SNB's policy update, the dollar rose against the Swiss franc by 0.51% as of 21:35 Beijing time

Conversely, Swiss market indices exhibited initial gains that later tapered off, peaking at 0.87% before retreatingThis volatility highlights the extensive impact of the SNB’s decision across domestic and international financial markets, affecting currency exchange rates and stock market performances alikeParticipants were prompted to reassess their investment portfolios and exposure to risks as a response to these monetary shifts.

Looking ahead, the Federal Reserve is set to convene for its monetary policy meeting next week, where the prospect of a third rate cut for the year appears increasingly likely.

In a recent economic release, the United States reported its Producer Price Index (PPI) for November, which saw an annual increase of 3%, outpacing estimates of 2.6% and up from 2.4% in the previous period

The month-on-month PPI also rose by 0.4%, exceeding predictions set at 0.2%. Moreover, the U.Ssaw first-time claims for unemployment benefits rise to 242,000, compared to forecasts of 220,000 and a prior figure of 224,000.

Following these data releases, global traders intensified their bets on potential future rate cuts by the Federal Reserve, evidenced by a narrowing of earlier losses in short-term U.Sinterest rate futuresNotably, after the announcement of the November CPI data on December 11, traders had already ramped up their expectations for a December rate cutAccording to the CME FedWatch Tool, the anticipated probability of a rate reduction surged from 86.1% before the data release to a striking 96.4% afterwardOngoing forecasts also suggest that the Federal Reserve may hold rates steady in January, though the likelihood of a cut has risen slightly to about 23% in light of recent CPI figures.

Data from the CME “Fed Watch” tool indicates that the probability of the Fed maintaining the current interest rate in December stands at a mere 1.4%, while the odds of a 25 basis point cut are dramatically high at 98.6%. For January, the likelihood of the Fed not changing rates hovers around 1.1%, with a cumulative 25 basis point cut holding a 79.9% chance, and a total of 50 basis points at 19%.