Interest rates are expected to rise again

Financial markets are once again pricing in the European Central Bank raising the key interest rate twice this year, by a total of 50 basis points, or 0.5 percent.

The last two rate hikes were considered a possibility on March 9, when oil prices rose sharply as a result of the war between Israel and the United States.

The background is at least the escalation in the Iran war that took place on Wednesday. Iran said on Wednesday that the US and Israel had struck the South Pars natural gas field in the Persian Gulf. For example, Bloomberg reported on the topic. It is one of the largest gas production areas in the world, which Iran shares with Qatar. Iran vowed to retaliate against the strikes, and other Gulf oil producers could be targeted.

The price of crude oil rose rapidly following the news. During the day, the price of a barrel of Brent crude oil temporarily increased by almost six percent above 109 dollars. In the morning, the price hovered around $100. European natural gas futures prices fell by more than 7 percent.

The ECB is currently meeting and will announce its interest rate decision tomorrow, Thursday. The bank is not believed to change the policy rate yet.

At the same time, interest rate forecasts were revised in the United States as well. In addition to the war, the producer price indices reported on Wednesday were hotter than expected. The figures were from February before the war, but producer prices rose faster than economists had predicted.

The interest rate market is now pricing in an average of less than one 0.25 percent interest rate cut from the Fed for this year. In other words, investors no longer dare to price the central bank lowering interest rates even once. Even at the beginning of March, the market considered two interest rate cuts practically certain.

The Fed will announce its latest interest rate decision today at 20:00 Finnish time. The expectation is that the interest rate will remain unchanged this time.