(Bloomberg) -- In a week when traders bet on fewer and slower interest-rate cuts globally, the European Central Bank looks set to buck the trend.

Money markets are sticking to wagers that the ECB will deliver a quarter-point cut in June. Meanwhile, they pushed back the expected start date for the Federal Reserve and Bank of England by one meeting to September and August, respectively.

It’s a turnaround from the recent market narrative, which had seen all three major central banks delivering cuts in unison from the middle of the year. Now, with ECB officials confirming they are undeterred by the more cautious outlook in the US — where a hot inflation reading spurred a major repricing Wednesday — that thesis is unraveling.

“The ECB has communicated a clear message regarding the start of the easing cycle in June. This marks a significant difference with the intentions of the Fed, which appears to be backtracking,” said Nicolas Forest, chief investment officer at Candriam. 

Going into Thursday’s decision, the concern for some was that President Christine Lagarde would be forced to water down signals that the ECB was preparing for a reduction in June. Instead, she reiterated that the ECB doesn’t take its cue from across the Atlantic and signaled the prospect of a move in two months’ time.

Europe’s economy has been flirting with a recession for more than a year. A recent survey of bank lending showed plunging corporate demand, while euro-area inflation undershot last month, slowing to 2.4% from 2.6% in February. That contrasts with the US, where consumer price growth topped forecasts and forced traders to scale back wagers on the extent of easing that the Fed can deliver. 

Hawkish policy in the US poses a challenge for policymakers in the euro area to deliver multiple cuts. A significant divergence in interest rates could weigh heavily on the common currency, potentially sending it back toward parity with the dollar. 

‘Balancing Act’

“The chance that the ECB will be reducing interest rates ahead of the Fed has increased,” said Nick Sheridan, portfolio manager at Janus Henderson. “The likely effects of such cuts include the euro weakening against the dollar and oil prices increasing, so the ECB still has a balancing act to finesse.”

Euro-area policymakers on Thursday held interest rates steady for a fifth meeting, while flagging a possible reduction for the first time, contingent on its economic forecasts indicating consumer-price growth is safely headed to 2%.

European bonds and the euro were little changed toward the end of a volatile session. The yield on the two-year German note was one basis point higher at 2.97% after touching 3% earlier, its highest level since November.

“The ECB continues to signal a start to rate cutting this summer,” said Gurpreet Garewal, macro strategist for fixed income and liquidity solutions at Goldman Sachs Asset Management. She has an overweight position in European rates.

In the case of the BOE, the hawkish repricing extended. Investors now see about two interest-rate cuts this year, down from as many as three before the US inflation report. Gilts dropped, sending two-year yields as much as 10 basis points higher.

“As other central banks embark on cuts in the coming months, it looks like the Fed is on hold at least until July,” said Samuel Zief, head of global FX strategy at J.P. Morgan Private Bank. “We prefer to stay long USD and like these levels on European bonds to express a long duration view.”

--With assistance from Naomi Tajitsu, James Hirai, Alice Atkins and Greg Ritchie.

(Updates prices, adds analyst comments and context on Lagarde.)

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