Key facts
- Rate hike expectations have shifted globally due to Middle East tensions and inflation.
- ECB rate hike expectations solidified for June after Core CPI rose to 2.5%.
- BoJ rate hike expectations increased following hawkish comments from Governor Ueda.
- Fed rate hike expectations rose slightly due to strong US labor market and inflation data.
Rate hike expectations have seen a hawkish repricing across multiple central banks, influenced by ongoing Middle East tensions and persistent inflation. The US-Iran stalemate continues to extend, impacting currency markets and commodity prices, particularly concerning the Strait of Hormuz. For the European Central Bank (ECB), expectations for a rate hike in June have solidified following the Eurozone preliminary inflation report, which showed Core CPI rising to 2.5% year-on-year from 2.2% in the prior month. ECB policymakers have indicated that a June rate hike is unavoidable. The Bank of Japan (BoJ) also saw increased probabilities for a June rate hike after Governor Ueda made slightly more hawkish comments, stressing the risks of acting too late on inflation and the potential need for a stronger response. A Reuters report, citing three sources, suggested the BoJ is expected to hike rates in June unless there is a sharp escalation in the Middle East, and is also leaning towards pausing or slowing its bond tapering program. In the United States, expectations for a Fed rate hike by year-end have moved slightly upwards due to a series of strong US data releases indicating a stable or strengthening labor market and elevated inflationary pressures. The Reserve Bank of New Zealand (RBNZ) shows a high probability of a rate hike at its next meeting, while the Bank of England (BoE), Reserve Bank of Australia (RBA), Bank of Canada (BoC), and Swiss National Bank (SNB) are all showing high probabilities of no change at their upcoming meetings.