Markets Prepare for More Rate Volatility Amid Geopolitical Tensions
The global economy is bracing for more interest rate volatility as central banks and macroeconomic data interact with geopolitical tensions.
Despite some stability in the Eurozone's growth, which has been holding up alongside US numbers, markets are expected to remain volatile due to a complex mix of factors.
The European Central Bank can now focus on inflation rather than growth, supporting the hawkish stance of investors, while positive sentiment and higher US rates also contribute to upward pressure on longer-term interest rates. The 10Y euro swap rate may find comfort around the 3.2% mark.
In contrast, a dovish repricing is seen for USD and GBP rates due to reduced expectations of Fed hikes following a recent hold by the Federal Reserve. September's meeting will be challenging, with little forward guidance leaving markets uncertain. The 10Y GBP swap rate tends to follow US rates, which are still at risk of further increases.