ECB Hikes Rates by 25 Bps as Traders Raise Bets on U.S. Fed Rate Hike

The European Central Bank (ECB) has hiked its key interest rates for the second time this year amid concerns over rising inflation. This comes as crypto traders raise bets on a Fed rate hike, with the U.S. central bank potentially making the same decision as the ECB as soon as next week.

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ECB Hikes Key Interest Rates By 25 Bps Amid Fed Rate Hike Bets

In a press release, the ECB announced the Governing Council’s decision to raise the three key interest rates by 25 basis points (ECB). “The conflict in the Middle East continues to generate inflation pressures, and inflation is set to remain well above target for an extended period,” the release read.

Further commenting on the rate hike, the ECB noted that the outlook remains highly uncertain, with risks of rising inflation and downside risks to economic growth. This marks the ECB’s second hike this year as inflation concerns stemming from the U.S.-Iran war mount.

The Middle East crisis has again escalated over the last few days, with the U.S. and Iran exchanging strikes while the Iran-backed Yemeni Houthis have also joined in the regional attacks. These attacks have again sparked a global oil supply shock, sending Brent crude oil above $100 for the first time since July.

Meanwhile, the ECB’s rate hike comes just ahead of the September FOMC meeting, where the Fed could also hike rates. Several Fed officials, including Fed Presidents Beth Hammack and Neel Kashkari, have signaled that they will back a hike at the meeting.

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Traders Increase Bets On September Rate Increase

Crypto traders have raised their bets on a September Fed rate hike amid the ECB’s decision. Data from the top crypto prediction market platform Polymarket shows a 64% chance that the Fed will raise interest rates by 25 bps at the FOMC meeting next week.

The rise in the odds also follows the release of the August PPI inflation data, which came in above expectations. PPI rose 5.4% year-over-year (YoY) as against expectations of 5.3%. The next key data is the CPI inflation report, which drops tomorrow and could determine the Fed’s decision next week. Fed Governor Chris Waller said last week he was leaning toward holding rates unchanged but could consider a hike if inflation data comes in hot.

The Bitcoin price is down as the market continues to price in a Fed rate hike. The leading crypto is currently trading below $77,000, down nearly 2% today, according to TradingView data.