Energy Price Surge Drives Higher European Rates, Federal Reserve Sticks with Rate Hikes

The global economy has been impacted by ongoing geopolitical tensions and their effects on energy prices. Oil prices have risen to nearly $90 per barrel, while European gas prices have surpassed €60/MWh due to low storage levels.

This surge in energy costs has contributed to higher European rates, with long-end government bond yields reaching new highs, particularly in Japan and the US. In contrast, short-end US rates have declined following weaker macro data and a more cautious Fed Chair.

The Federal Reserve still anticipates two rate hikes in December 2026 and March 2027, bringing the key policy rate to 4.00-4.25%. However, there is a risk that these increases could occur earlier than expected.