ECB Rate Hikes Loom as Energy Prices Soar

The European Central Bank (ECB) is expected to raise interest rates at its September policy meeting, driven by soaring energy prices due to the ongoing US-Iran conflict. According to Carsten Brzeski, ING's global head of macro, 'We expect the ECB to hike rates by 25 basis points. Another insurance rate hike.' He added that this would be a 'dovish rate hike.'

The latest data shows Eurozone inflation rose back above 3% in August, with traders fully pricing in a 25-basis-point move to 2.5%. This has led to a steady euro against the British pound.

In contrast, the Bank of England (BoE) Governor Andrew Bailey's comments have taken on a more hawkish tone, signaling that upside inflation risks dominate the message. Bailey underlined the persistent cost-push threat posed by the US-Iran war and Ukrainian attacks on Russian refineries, which are driving energy and refined product prices higher.