The European Central Bank is widely expected to keep its key interest rates unchanged at its policy meeting today, but markets are bracing for a significant shift in tone.
Officials are anticipated to signal that further tightening remains on the table, with a potential rate hike in September now firmly in play.
This hawkish recalibration comes as a fresh surge in energy prices threatens to reignite inflationary pressures across the eurozone, complicating the central bank's efforts to stabilize prices without stifling growth.
The decision to pause today's rate adjustment reflects the lagged impact of previous tightening measures, but the forward guidance is the critical takeaway for traders.
By keeping the door open for a September increase, the ECB is effectively pricing in a more restrictive stance than previously implied.
This development is likely to support the euro and push yields higher on European government bonds, as investors adjust their expectations for the remainder of the year.