ECB Rate Hike Almost Fully Priced as Eurozone Sentiment Improves

Interest-rate markets are pricing in an almost-certain rate increase from the European Central Bank at its next policy meeting, according to a rate-expectations roundup published by ForexLive that tracks pricing across multiple major central banks.

The roundup put the implied probability of an ECB hike at its next meeting at 98%, with markets pricing in roughly 41 basis points of cumulative ECB tightening by the end of the year. That places the ECB alongside a small group of major central banks, including the Reserve Bank of New Zealand and the Bank of Japan, where hike expectations have become similarly one-sided this week.

The shift in rate expectations comes as separate data pointed to an improving eurozone economic backdrop. A reading on eurozone economic sentiment for August showed the recovery extending, with the headline economic confidence index coming in at 98.4, above the 97.5 level expected and up from a prior reading of 96.9 (revised to 97.1), according to ForexLive's coverage of the release. Within that same report, industrial confidence improved to -5.3 from an expected -5.2, while services confidence rose to 5.8.

Consumer confidence for the bloc held steady at -15.5 in the final August reading, matching both the preliminary estimate and expectations, but down from -15.9 previously — a modest improvement that adds to the broader picture of stabilizing sentiment across the currency union heading into the autumn.

Taken together, firming sentiment data and near-unanimous market pricing for a hike point in a consistent direction for the eurozone's policy outlook, even though the sentiment survey itself does not set monetary policy and the two data points come from separate releases. Rate-setters at the ECB will have both inputs available as they approach their next scheduled decision.

The eurozone figures follow a run of individual country data this week, including preliminary August inflation readings from France and Spain and a final second-quarter GDP figure from France, all of which fed into the broader macro picture markets are weighing alongside the ECB's own rate path.

With market pricing for an ECB hike now near saturation, attention is likely to shift toward the size and communication of any move, and whether incoming sentiment and inflation data over the coming weeks continues to support the currently priced-in path.