ECB: War-driven inflation keeps hikes in focus – Nomura

FXStreet Insights Team FXStreet

Nomura’s George Buckley and team argue that even a swift resolution to the US-Iran war and reopening of the Strait would not necessarily stop the European Central Bank (ECB) from raising rates in June. They now expect two ECB hikes in June and July 2026, brought forward from 2028, as higher energy prices push Euro area inflation above target.

War impact supports earlier ECB tightening

"Inflation is coming in above target in H1 2026 due to the Iran war."

"We expect higher energy prices to dampen euro area growth due to the economy’s heavy reliance on energy imports."

"We have brought forward our two ECB rate hikes (previously 2028) to June and July this year as a result of higher energy prices."

"As and when markets shift into de-escalation gear regarding the US-Iran war, we consider whether a resolution of the war and a reopening of the Strait would prevent the ECB from raising rates in June and July, which is our base case."

"We believe the ECB could still justify a June rate hike, to send a signal that it won’t leave inflation expectations and inflation unchecked."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Author

FXStreet Insights Team

FXStreet

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

GBP/USD remains in two-day highs around 1.3260

GBP/USD adds to Friday’s bounce, gathering fresh traction and flirting with the 1.3270 zone on Monday, or two-day tops. Cable’s decent advance comes despite the move higher in the Greenback and investors’ assessing of UK PM K. Starmer's resignation.

EUR/USD remains close to three-month lows near 1.1450

EUR/USD sets aside Friday’s bounce and trades with modest losses in the mid-1.1400s at the beginning of the week. The continuation of the bid bias in the US Dollar continues to weigh on spot despite improving sentiment from the geopolitical front.

Gold bounces off lows, looks to surpass $4,200

Gold regains composure and leaves behind three-consecutive daily declines on Monday, looking to regain the area above the $4,200 mark per troy ounce. Reports of progress in the latest round of US-Iran talks are helping the precious metal maintain its footing at the start of the week, although the stronger Greenback seems to limit the upside potential for now.

Breaking: Iran closes the Strait of Hormuz amid ceasefire deal violation

Iran says it is closing the Strait of Hormuz after accusing the United States (US) and Israel of violating the ceasefire. According to Iran, the decision came over the continued Israeli strikes in Lebanon. The Iranian Revolutionary Guard Corps Navy issued a warning to all vessels: "Do not approach the Strait of Hormuz; otherwise, your security will be jeopardized."

Is Shiba Inu dead or just in a crisis? The data behind SHIB's 95% crash

SHIB, the dog-themed meme coin that became one of the biggest success stories in crypto and turned early buyers into crypto millionaires, is facing tough times. Its price has fallen more than 32% so far this year, and it is down 95% from its all-time high in 2021. Is SHIB simply another fading meme coin, or is the market overlooking a possible recovery story?

Regime change: Inside Kevin Warsh's first move to make the Fed unreadable on purpose

The rate did not move. That was the least interesting thing about Kevin Warsh's first meeting in charge of the Fed. The FOMC held its benchmark at 3.50%-3.75% for the fourth straight meeting, exactly as priced, and then the new chair used his first press conference to dismantle the machinery the market has leaned on for a decade.