ECB Shifts Rate Hike Timeline Amid Euro-Dollar Divergence

Long-term government borrowing costs in Europe have surged sharply, particularly in France where the ten-year OAT yield rose by 50 basis points in a single month, its largest move since 2022. According to Christine Lagarde, this increase is already slowing growth and tightening financial conditions.

Lagarde's comments shift attention from an October ECB rate hike toward December. The gap between the European Central Bank and the Federal Reserve has pushed the euro to its lowest level against the U.S. dollar since June.

Markets are pricing three Federal Reserve rate hikes by mid-2027, further widening the gap between the two central banks.