Both Commerzbank and BNY highlight a significant repricing of European Central Bank (ECB) rate hike expectations following hawkish ECB commentary and an Iran-related energy shock. According to Commerzbank’s Hauke Siemßen, money markets are now discounting three full ECB rate hikes by year-end, with an 80% probability of the first move occurring in April. This shift is attributed to hawkish remarks from ECB sources and officials, as well as the fallout from rising energy prices linked to geopolitical tensions [1]. BNY’s Bob Savage similarly notes that the energy shock has triggered a sharp reassessment of monetary policy, with the ECB, Bank of England (BoE), and FOMC all signaling a more hawkish stance than previously expected. This has led to surging breakeven inflation rates and a flattening of yield curves, sharply increasing rate hike expectations [2].
Commerzbank points out that the April ECB meeting may see a rate hike as a risk management exercise, with limited data available for March. More hawkish council members, such as Nagel, appear in favor of an April hike, while centrist members are expected to ultimately decide the outcome. The ECB wage tracker and Survey of Monetary Analysts (SMA) for March are anticipated to provide further insight into inflation and policy expectations, though growth indicators like PMIs and Germany's ifo may receive less attention due to the market's focus on energy price fallout [1].
BNY, however, cautions that further ECB hikes require clear justification from shifting expectations and incoming data. Savage emphasizes the importance of upcoming PMI and ifo releases for gauging growth and input-cost pressures in the Euro area, suggesting that any rate moves are likely to be precautionary rather than indicative of a new tightening cycle. The ECB is expected to closely monitor these data points to assess the impact of the conflict on industry and exporters [2].
Both sources agree that the energy shock has been a catalyst for aggressive policy repricing, but BNY underscores the need for data-driven justification before the ECB commits to additional hikes, while Commerzbank sees the April meeting as a potential turning point for policy action.
CONCLUSION
The Iran-driven energy shock has prompted markets to price in aggressive ECB rate hikes, with a strong likelihood of action as early as April. While hawkish signals dominate, analysts stress the importance of upcoming wage and growth data in shaping the ECB’s next steps. The market remains highly attentive to both policy signals and economic indicators as the Eurozone navigates heightened uncertainty.