Could the European Central Bank raise interest rates again before the end of the year? That’s the question on everyone’s mind as several indicators point to persistent inflation in the eurozone. This hasn’t happened since the end of the rate-hiking cycle 💶
🔍 What’s going on?
The ECB had ended its cycle of monetary tightening at the start of the year, leaving its key interest rates unchanged. But now, recent data is reigniting the debate. Core inflation is holding up better than expected in several eurozone countries, and wages continue to rise at a steady pace.
Some members of the Governing Council are beginning to put the option of another rate hike back on the table. For the markets, the message is clear: we may not have reached the peak of interest rates as everyone thought.
💡 Why does this matter?
For forex traders, the EUR/USD pair is directly in the crosshairs. At the time of writing, the pair is trading at 1.1431. A surprise rate hike by the ECB would send the euro soaring against the dollar, especially if the Fed remains on a stable course.
European bonds are also under pressure. Another rate hike would mean higher yields on German Bunds and French OATs. For European stock traders, this is clearly a headwind, especially for rate-sensitive sectors like real estate and utilities.
📊 Our Take
The ECB will raise rates one last time. Too many signals point in that direction.
Christine Lagarde has always taken a hard line on inflation, and the numbers are proving her right for now. Inflation in the services sector remains stuck above 4%, wage negotiations in Germany and France continue to push prices higher, and consumer spending is holding up despite high interest rates. In this context, the ECB cannot afford to declare victory too soon. We’re betting it will raise rates by 25 basis points by September, just to ensure inflation doesn’t pick up again. For the FR trader: take a long position on EUR/USD with a target of 1.16, and underweight European banks, which will bear the brunt of bond market volatility.
In the short term, we expect the euro to strengthen gradually. Keep an eye on the minutes from the next Governing Council meeting—they’ll set the tone.
✅ Key Takeaways
- The ECB could implement one final rate hike in 2026
- Core inflation remains above 4% in the eurozone
- EUR/USD could target 1.16 in the event of a surprise rate hike
- European bonds and stocks would face renewed pressure
- The minutes from the next Governing Council meeting will be key to confirming the policy direction
What do you think? Are you betting on one last rate hike by the ECB, or do you think it will stay on its current course until 2027?
🔎 See also
To learn more, check out all our economic analyses on ActuTrading Economy 📈
Source: ECB, Financial Press
