Traders bet that the European Central Bank and the Bank of England will raise rates four times as surging oil prices heighten inflation concerns

Traders are increasing their bets on interest rate hikes by the European Central Bank and the Bank of England, as rising energy prices may make inflation difficult to subside over the next year. The swaps market currently shows that traders expect the European Central Bank to raise rates by about 90 basis points by December 2027, the most in this tightening cycle. This suggests policymakers may need to hike rates three times during this period, each time by 25 basis points, with a 60% probability of a fourth hike. The swaps market indicates that the Bank of England is expected to raise rates by a similar margin over the same period, which would push interest rates to their highest since February 2025. Both Europe and the UK are highly dependent on imported oil, especially natural gas, making their economies vulnerable to price surges. The market widely expects the European Central Bank to raise rates at its meeting on Thursday. Movements in the swaps market highlight concerns over an inflation surge triggered by the Iran war.