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Hawkish ECB pricing lifts euro-zone yields as energy risks rise

Markets are pricing 2 to 3 more ECB rate hikes over the next year and nearly another move in September, while MUFG flags that sustained higher energy prices could raise tightening risk and weigh on growth.

Reported · Written up by our desk · Central Banks

FXStreet reports that analysts at MUFG said euro-zone yields have climbed to fresh year-to-date highs ahead of the European Central Bank meeting, with investors shifting toward more hawkish rate expectations.

According to MUFG, markets are pricing 2 to 3 further ECB rate hikes over the coming year and have almost fully discounted another move in September, aligning with the firm’s view of a final September hike.

MUFG also warned that if higher energy prices persist into the second half of the year, the risk of additional tightening would increase, while growth downside in the euro area would likely worsen.

The note added that with inflation risks rising, there is limited room for ECB President Christine Lagarde to push back against expectations for multiple rate hikes, and it pointed to the euro-zone economy holding up better than expected so far despite the energy price shock.

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