Deutsche Bank highlights that markets now assign a clear probability to an ECB rate hike by December 2026 as Oil prices surge. The report notes that pricing has flipped from expecting a cut just a week earlier, while ECB officials including Villeroy and de Guindos acknowledge that an extended war could alter the policy stance.

Market shifts from cuts to possible hike

"With oil prices continuing to rise, investors grew more doubtful about central bank rate cuts this year, with the prospect of hikes even coming into view."

"That was particularly clear for the ECB, where a hike by December moved up to a 63% chance by the close, which is the first time in 2026 that it’s been above 50%."

"A 55% probability of a cut was priced in as recently as last Friday."

"Meanwhile, ECB officials struck a watchful tone over the situation, with Banque de France Governor Villeroy saying he didn’t see any reason today to raise rates, while ECB Vice President de Guindos said an extended war could raise inflation expectations and prompt a change in the policy stance."

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