Traders see under 40% chance ECB raises rates in October

Bets on an October increase have been pared back after officials flagged mixed signals on inflation and wages.

Traders now see less than a 40% chance that the European Central Bank raises interest rates at its October meeting, down from higher odds before officials weighed in on inflation and wage pressures in recent days.

The pullback follows comments from ECB officials pointing to upside risks on inflation alongside limited wage pressure from the energy shock. ECB board member Vujcic said the central bank has already started a tightening cycle, following two rate increases this year, and traders are pricing in several more increases through 2027.

ECB President Christine Lagarde said economic resilience should continue into the third quarter, even as risks to inflation and growth pull in opposite directions. She also said wages show no material response to the energy shock. Separately, Lagarde said the ECB is working on swap lines for euro area sovereignty, without giving detail on counterparts or timing.

The low probability traders assign to an October move reflects the ECB's cautious stance despite those mixed inflation signals. With officials divided on whether conditions warrant further tightening, and the central bank saying it is taking meetings one at a time, the market is pricing a pause as the base case, consistent with the data-dependent approach Lagarde has emphasized.