Eurozone Growth Bolsters ECB Rate Hike Expectations

The European Central Bank's (ECB) decision to hike interest rates at its September meeting appears increasingly likely, despite concerns over the impact of rising energy prices.

This conclusion is based on recent macroeconomic data from the Eurozone, which has revealed a faster-than-expected growth rate in the second quarter. The boost in AI investment and government spending have been key drivers of this expansion, with the economy growing at a pace that should be able to withstand further tightening by the ECB.

The common currency, the Euro, is being buoyed back towards the top of its recent range as swap markets continue to price in around a 90% chance of a 25 basis point hike at the September meeting. This expectation has been bolstered by core inflation data, which surprised to the upside.

The fact that the Euro Area economy appears resilient enough to withstand further tightening, and is more exposed to imported energy inflation than other regions, suggests that the ECB's decision may be a done deal even in the event of a peace deal.