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A July Rate Hike From ECB Is Now on the Horizon for Traders

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(Bloomberg) — Traders are bringing forward bets on the timing for European Central Bank rate hikes, adding to policy makers’ struggle in controlling the narrative for monetary policy and inflation. 

Money markets now see the ECB kicking off rate hikes this year with a 10-basis-point increase by July, versus September previously. They continue to wager on a quarter-percentage point of hikes by year-end, which would lift the deposit rate to minus 0.25%. Traders also brought forward bets for Bank of England tightening, fully pricing a 25-basis-point hike on Thursday. 

Data on Wednesday showed euro-area inflation quickened to a record 5.1% pace in January, raising the pressure on policy makers who meet on Thursday. 

Euro-Zone Inflation Unexpectedly Hits Record, Pressuring ECB 

The euro extended gains to as high as $1.1316, set for the longest rising streak in almost six weeks. Meanwhile, yields on shorter-maturity German debt climbed and outpaced their longer-term peers, sending the gap between five- and 30-year rates to the least since the start of the pandemic. 

“The euro has jumped above $1.13 and could remain bid into the decision,” said Roberto Cobo Garcia, head of G-10 currency strategy at BBVA. “Given that investors are starting to price in a tighter monetary policy context in the European Economic and Monetary Union, the euro downside potential should be limited.”

(Updates with chart, strategist quote, market context throughout.)

©2022 Bloomberg L.P.


A July Rate Hike From ECB Is Now on the Horizon for Traders

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