ECB Rate Hike Bets Surge to 3% Amid Geopolitical Tensions

Traders are now betting on a more hawkish European Central Bank (ECB), with expectations of a deposit rate hike to nearly 3% by late 2027. This comes as geopolitical tensions continue to push inflation upwards, despite recent declines in oil prices.

The ECB is set to raise rates in September, following a June increase aimed at containing price pressures from the US-Iran war. Analysts note that concerns include tighter refined fuel supplies, low Eurozone gas inventories, and a conflict that may extend past the US midterm elections in November.

Rate markets are pricing about a 25% chance of the rate reaching 3% by March 2027 and roughly 60% by September. This is a significant increase from last month's expectations, which saw no chance of such a move by March.