Traders Bet on Aggressive Rate Hikes from ECB and BOE Amid Energy Price Surge

Traders are increasingly betting on interest-rate hikes from the European Central Bank (ECB) and the Bank of England as energy prices surge. According to swaps pricing, there is a high probability that the ECB will deploy three quarter-point hikes by December 2027, with a 60% chance of a fourth hike. This suggests around 90 basis points of ECB increases in total.

The shift in market expectations comes as inflation remains entrenched due to climbing energy prices. With policymakers likely to have to act quickly to control inflation, the market is pricing in a more aggressive tightening cycle than previously anticipated.