Interest rate cut trading recedes, traders are betting that the loose monetary policy in Europe is coming to an end.

Traders are increasingly inclined to believe that the major European central banks have almost finished their rate-cutting process. The currency market indicates that investors expect the European Central Bank, the Swedish Central Bank, and the Norwegian Central Bank to keep rates unchanged at tomorrow's meeting, and then to basically maintain rates unchanged in 2026. Although the market has priced in a rate cut by the Bank of England on Thursday, even though inflation data released on Wednesday was weak, the bets on the Bank of England only consider one more rate cut next year. This marks a sharp turnaround from earlier market sentiment this year, when it was widely believed that the major European central banks would significantly cut rates before 2026. Mike Riddell, a fund manager at Fidelity International, said, "Many countries have already cut rates significantly policy rates are no longer tightening. The biggest news in the rate area over the past month is that many countries that previously cut rates are now expected to raise rates, rather than cut them." This has prompted traders to reassess bond yields and currency prospects. With the European Central Bank potentially tightening monetary policy again, the yield on Germany's two-year government bonds, which serve as the eurozone benchmark, has surged around 10 basis points this month. Meanwhile, UK government bond yields declined in December; the Bank of England is expected to cut its benchmark interest rate by 25 basis points to 3.75% on Thursday and plans to cut rates again by mid-2026. On Wednesday, data showed that UK inflation in November was lower than expected, leading traders to increase their bets on a rate cut. The currency market currently expects rates to be cut by 66 basis points by the end of 2026. Riddell said, "The UK is a big exception," and added that shorting the pound can be used to predict further rate cuts by the Bank of England.