ECB Prepares for Rate Hike Amid Energy Price Surge

The European Central Bank (ECB) is expected to raise interest rates on Thursday due to high energy prices, which have driven inflation back above 3% in August. According to sources, the ECB has already decided to hike rates by a quarter-point to 2.5%, with some economists predicting another increase by December and one more next year.

Traders believe that the room for further rate rises is limited, as it could hurt economic growth. However, policymakers have little appetite to signal further increases, and most economists think the ECB will be done after September.

Euro zone business activity has continued to post solid growth, despite high gas and oil prices keeping upward pressure on inflation. The ECB's projections for inflation and growth are expected to remain broadly unchanged, although some anticipate GDP estimates could be nudged higher.