Last week was dominated by the European Central Bank, which delivered a widely expected 25 basis point rate hike but accompanied it with a much more hawkish message than markets had anticipated.
While the rate increase itself was already priced in, the ECB’s updated inflation outlook caught investors’ attention. Policymakers stressed that inflation remains a significant concern and suggested that a return to the 2% target may not be achieved until 2028 at the earliest.
That message has important implications for markets. It effectively signals that the ECB is nowhere near the end of its tightening cycle and has reinforced expectations for at least two further rate hikes before the end of the year.
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