Rising oil prices reignite inflation concerns, and global central bank rate cut expectations cool across the board

ChainCatcher News: Due to the Middle East conflict pushing up oil prices and sparking inflation concerns, the currency markets on Monday reduced their bets on rate cuts by the US, UK, and Eurozone. According to swap trades linked to policy meeting dates, the likelihood of the Federal Reserve cutting rates three times by 2026 has fallen from nearly 50% last week to 20%. Traders no longer expect the Bank of England to cut rates three times this year, lowering the probability of a March rate cut from over 80% to 60%.

They also halved the probability of the European Central Bank cutting rates this year, pricing in only a 5 basis point cut. The two-year yields for the US, UK, and Germany, which are most sensitive to monetary policy changes, have risen more than the long-term yields. This reflects a sharp jump in inflation indicators driven by Brent crude oil prices hitting their largest increase in four years.

Laura Cooper, Global Investment Strategist and Head of Macro Credit at NewWave Investments, said, “The sustained rise in oil prices will have significant spillover effects on the global economy and inflation trajectory. A more persistent energy pulse could complicate the disinflation process and delay further rate cuts.”