Key facts
- The ECB raised its three key interest rates by 25 basis points.
- The ECB cited inflation pressures from the Middle East conflict.
- Traders are now betting on a 64% chance of a 25 bps Fed rate hike at the next FOMC meeting.
- August PPI inflation data came in at 5.4% year-over-year, exceeding expectations.
- Bitcoin was trading below $77,000, down nearly 2% on the day.
The European Central Bank (ECB) announced a 25 basis point increase to its key interest rates, citing persistent inflation concerns exacerbated by the ongoing conflict in the Middle East. The decision marks the ECB's second rate hike this year, as it navigates rising inflation and uncertain economic outlooks with downside risks to growth.
The escalation of tensions in the Middle East, including exchanges between the U.S. and Iran and involvement from Houthi forces, has led to a global oil supply shock, pushing Brent crude oil prices above $100 per barrel for the first time since July.
This ECB move comes just before the U.S. Federal Reserve's September FOMC meeting. Several Fed officials, including Presidents Beth Hammack and Neel Kashkari, have indicated they would support a rate increase. Data from the crypto prediction market platform Polymarket shows that traders have increased their bets on a Fed rate hike, with a 64% probability now assigned to a 25 basis point increase at the upcoming meeting. This sentiment is partly influenced by August PPI inflation data, which exceeded expectations at 5.4% year-over-year. Fed Governor Chris Waller has stated he might consider a hike if inflation data proves to be high.
In response to the increased likelihood of a Fed rate hike, the price of Bitcoin has fallen, trading below $77,000 and down nearly 2% on the day.