Markets price 2-3 additional ECB rate increases, with a September hike nearly fully priced in amid rising energy costs.
Euro-zone short-term yields have surged to year-to-date highs as investors price in 2-3 further European Central Bank rate hikes. The shift follows rising energy prices, which have fueled expectations of tighter monetary policy across major central banks, including the ECB and Fed.
The euro-zone rate market now anticipates nearly a full 25-basis-point hike at the ECB’s September meeting, aligning with forecasts for one final increase. US markets, by comparison, price in around two Fed hikes over the same period, though European yields have risen more sharply, narrowing spreads against the USD.
Analysts warn that sustained energy price increases could heighten inflation risks, potentially prompting additional ECB tightening and weighing on Euro-area growth. The ECB is seen as unlikely to push back strongly against market expectations given rising inflation concerns.