Traders are increasing their bets on interest rate hikes by the ECB and the Bank of England, as rising energy prices may make it difficult for inflation to subside in the coming year. The swap market currently shows that traders expect the ECB to raise interest rates by about 90 basis points by December 2027, the highest in this tightening cycle. This means that policymakers may need to raise interest rates three times, 25 basis points each time, and have a 60% chance of raising interest rates a fourth time during this period. According to the swap market, the Bank of England is expected to raise interest rates at roughly the same rate during the same period, which will push interest rates to the highest level since February 2025. Both Europe and the UK are highly dependent on imported oil, especially natural gas, so the economy is vulnerable to soaring prices. Markets generally expect the ECB to raise interest rates at Thursday's meeting. Changes in the swap market highlight market concerns about soaring inflation caused by the war in Iran.

Traders are increasing their bets on interest rate hikes by the ECB and the Bank of England, as rising energy prices may make it difficult for inflation to subside in the coming year. The swap market currently shows that traders expect the ECB to raise interest rates by about 90 basis points by December 2027, the highest in this tightening cycle. This means that policymakers may need to raise interest rates three times, 25 basis points each time, and have a 60% chance of raising interest rates a fourth time during this period. According to the swap market, the Bank of England is expected to raise interest rates at roughly the same rate during the same period, which will push interest rates to the highest level since February 2025. Both Europe and the UK are highly dependent on imported oil, especially natural gas, so the economy is vulnerable to soaring prices. Markets generally expect the ECB to raise interest rates at Thursday's meeting. Changes in the swap market highlight market concerns about soaring inflation caused by the war in Iran.