Nordea analysts Jan von Gerich, Tuuli Koivu and Anders Svendsen expect the European Central Bank to focus on inflation rather than growth if the Middle East conflict continues and price pressures rise.<\/p>\n
They forecast four rate rises of 25 basis points starting in June. This would take the ECB deposit rate to 3% by October.<\/p>\n
They expect the deposit rate to stay at 3% until the end of 2027. They also state that the risk is for earlier or larger moves.<\/p>\n
They outline an alternative path in which the ECB starts raising rates in April. They also consider a first move of more than 25 basis points in June, while keeping 25 basis points as the most likely starting step.<\/p>\n
They link the timing of the first rise to the conflict and energy prices. They link the number and pace of later rises to broader inflation pressures and economic performance, amid higher energy prices, uncertainty, and rising rates.<\/p>\n
Looking back at the analysis from 2025, we expected the European Central Bank to begin an aggressive hiking cycle to control inflation. The ECB was indeed forced to prioritize inflation, raising the deposit rate even faster than anticipated to 3.5% by the end of last year. Those rate hikes, which were larger than the four 25bp moves we initially forecast, have successfully cooled demand.<\/p>\n
We are now facing flat GDP growth across the Eurozone for the first quarter of 2026, with recent PMI data from Germany showing a contraction below 48.5. Despite this slowdown, core inflation remains stubbornly high at 3.6%, well above the ECB\u2019s 2% target. This creates a difficult situation where the central bank is hesitant to signal any rate cuts that could refuel inflation.<\/p>\n
The futures market is currently pricing in at least two rate cuts by the end of this year, but we see this as overly optimistic given the inflation data. Traders should therefore consider positioning for yields to remain higher for longer, perhaps by using options to bet against a sharp fall in the 2-year German bond yield. Given this uncertainty, implied volatility on EURIBOR options has climbed to levels not seen since late 2025, suggesting strategies that profit from price swings could be effective.<\/p>\n
In the swaps market, this divergence between market expectations and central bank rhetoric presents an opportunity. Receiving the fixed rate on 2-year or 3-year swaps could be a profitable trade if the ECB holds rates steady through 2026, defying the market\u2019s dovish bets. This position essentially bets that the current economic weakness will not be enough to force the ECB’s hand in the face of persistent inflation.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" Nordea expects ECB prioritize inflation amid conflict, hiking four times from June to 3% by October.<\/p>\n","protected":false},"author":38,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[46],"tags":[],"class_list":["post-44299","post","type-post","status-publish","format-standard","hentry","category-live-updates"],"acf":[],"aioseo_notices":[],"featured_image_src":null,"featured_image_src_square":null,"author_info":{"display_name":"josephine","author_link":"https:\/\/www.vtmarketsglobal.com\/en\/author\/josephine\/"},"_links":{"self":[{"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/posts\/44299","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/users\/38"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/comments?post=44299"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/posts\/44299\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/media?parent=44299"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/categories?post=44299"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/tags?post=44299"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}