Lagarde's Guidance Will Determine ECB Rate Hike Impact

The European Central Bank's (ECB) rate hike this week is no longer in question, but the degree of tightening remains uncertain. Market analysts expect a 25-basis-point increase for the second time this week at its Berlin meeting on September 9-10.

Mitsubishi UFJ (MUFG) Bank believes the decision has already been fully priced in by the market, leaving little room for surprise. However, MUFG does not rule out the possibility of another rate hike before year-end, which would have a significant impact on the euro and eurozone interest rates.

The key drivers of expectations include soaring natural-gas prices hitting new highs and the eurozone economy's strong resilience. The market has already factored in subsequent policy trajectory, with pricing implying roughly 75 basis points of additional tightening by mid-2026.