Nomura’s George Buckley and team argue that even a swift resolution to the US-Iran war and reopening of the Strait would not necessarily stop the European Central Bank (ECB) from raising rates in June. They now expect two ECB hikes in June and July 2026, brought forward from 2028, as higher energy prices push Euro area inflation above target.

War impact supports earlier ECB tightening

"Inflation is coming in above target in H1 2026 due to the Iran war."

"We expect higher energy prices to dampen euro area growth due to the economy’s heavy reliance on energy imports."

"We have brought forward our two ECB rate hikes (previously 2028) to June and July this year as a result of higher energy prices."

"As and when markets shift into de-escalation gear regarding the US-Iran war, we consider whether a resolution of the war and a reopening of the Strait would prevent the ECB from raising rates in June and July, which is our base case."

"We believe the ECB could still justify a June rate hike, to send a signal that it won’t leave inflation expectations and inflation unchecked."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)