Traders face the prospect of greater rate hikes by the European Central Bank as pressure mounts on officials to step up their fight against record inflation in the region.
Money markets tightened by 125 basis points in October, according to interest rate derivatives tied to ECB meeting dates. This implies a half point increase and a three-quarter point increase for the next two policy decisions. According to markets, next year the ECB deposit rate will reach its' highest level since 2008 of 2.25%.
The repricing shows that investors' will to factor in giant increases at the start of the ECB's rate hike cycle grows. A growing minority of politicians have expressed their willingness to raise rates by 75 basis points following the aggressive stance of the Federal Reserve. The ECB has raised rates by half a point in July abandoning a forecast that it will only raise rates by a quarter of a point.
Euro zone inflation data accelerated to another all-time high was followed by the latest price increase. ECB Governing Council member Joachim Nagel called for a "strong" response to Wednesday's data when politicians meet next week. Money markets are currently valuing a tightening of this policy decision by about 67 basis points, which means a three-quarters point increase is the most likely.
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