The direction of travel for interest rates will be in a large part determined by developments in the Middle East conflict.

The Middle East conflict, which has seen increased tensions and renewed hostilities, has had a significant impact on central banks as well as markets expectations, regarding their respective policy stances. Most of the main central banks came into 2026 with a bias to either cut rates further or to maintain rates at low levels. Similarly, futures markets indicated that investors were anticipating further rate cuts over the course of this year.