Investor Bets Surge on Central Bank Rate Hikes Amid Iran War Crisis

Investors increase bets on central bank rate hikes in Europe as energy prices soar due to Iran's Middle East attacks. The Bank of England's surprise move to hold rates signals readiness for increases amid rising oil prices. Traders adjust expectations for multiple rate hikes by year's end.

Investors are doubling down on central bank rate hike bets in Europe as skyrocketing energy prices leave central banks with little choice but to tighten policy amid the escalating Iran war. On Thursday, oil prices surged to $119 a barrel as Iran struck energy facilities across the Middle East following Israel's assault on the South Pars gas field.

The Bank of England validated these expectations by voting unanimously to hold rates steady, while hinting at potential hikes. This surprised markets expecting a different outcome, with traders now forecasting the BoE to raise rates twice this year, possibly thrice. Markets previously anticipated only a chance of two hikes before the conflict.

The European Central Bank is expected to take a similar stance, with traders fully pricing in two hikes and a likelihood of a third by December. Financial markets are under pressure from the hawkish trend, highlighted by an increase in two-year bond yields worldwide. The U.S. Federal Reserve's own hawkish shift reinforces this global monetary tightening trend.