The market increases hawkish bets on the European Central Bank, expecting the deposit rate to rise to nearly 3% by 2027.

智通财经2026/08/24 01:21

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The currency market is preparing for the European Central Bank’s increasingly hawkish stance, with expectations that geopolitical tensions will complicate the anti-inflation task and push the key deposit rate to nearly 3% by the end of 2027. The market has already priced in a rate hike for September (with deposit rates anticipated to rise to 2.5%), and bets on further tightening continue to grow. Data indicates that the probability of deposit rates reaching 3% by September 2027 has surged from zero a month ago to around 60%.
Investor concerns are not only about oil prices but also include tightening supplies of refined fuels, eurozone natural gas inventories at the lowest level for this time of year in over a decade, and the possibility that conflicts may continue past the US midterm elections in November. Even though Brent crude’s spot premium has narrowed sharply from $40 to $7, expectations for rate hikes remain robust, indicating traders’ worries about inflation persistence go beyond oil prices themselves.
Eurozone inflation is also weighed down by the natural gas market. Storage levels are currently the lowest for this period, and the market expects storage targets will not be met before winter, in part due to hot weather boosting cooling demand. Capital Economics noted that inventories last approached these levels in 2021, when prices exceeded €170, compared to about €65 now.
The stickiness of inflation relative to expectations is also driven by expansionary fiscal policy, investment in green transition, defense spending, and a tight labor market, all of which are reversing the deflationary pressures observed before the pandemic. The eurozone economy is showing resilience, with business activity in August recording its fastest growth rate this year. The five-year euro overnight index swap rate has risen to 2.85%, the highest since November 2023, and is seen as an indicator of the market’s measure of the neutral rate.
The Head of Global Macro Research at ING stated that market pricing reflects the assumption that “the war will last until November.” A senior economist at Mitsubishi UFJ Financial Group pointed out that if the goal of a lasting peace agreement begins to appear out of reach and energy prices approach the European Central Bank’s “adverse scenario,” it could trigger a situation closer to a full tightening cycle.

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The market increases hawkish bets on the European Central Bank, expecting the deposit rate to rise to nearly 3% by 2027.

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