(Bloomberg) — Traders are beginning to doubt the European Central Bank will deliver its biggest interest-rate increase in more than two decades this week amid mounting concerns about the health of the region’s economy.
(Bloomberg) — Traders are beginning to doubt the European Central Bank will deliver its biggest interest-rate increase in more than two decades this week amid mounting concerns about the health of the region’s economy.
Money markets scaled back rate hike expectations, putting the odds of a 75 basis-point move at about 65%, according to swaps tied to ECB meetings. That’s down from as high as 80% last week. Data Tuesday showed factory orders in Europe’s largest economy fell for a sixth month, adding to concerns over the outlook for growth.
The ECB last raised its key rate by three quarters of a percentage point in 1999.
The bank on Thursday will hold its first monetary policy meeting since July, when officials raised the key rate for the first time since 2011. Some Governing Council members have since set the stage for bigger increases, highlighting the need to act quickly to tame searing inflation. Yet a deep euro-area recession could limit the need for aggressive tightening.
The two-year German yield — which is the most sensitive to changes in monetary policy — fell as much as 16 basis points to below 1% for the first time in over a week. It was trading 3 basis points lower at 1.09% later in the session, down 20 basis points from a peak on Sept. 1.
Read more: ECB’s Kazaks Says Broad, Protracted Recession Could Slow Hikes
(Updates with additional context.)
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