Soaring oil prices reignite inflation concerns, cooling expectations for interest rate cuts across the board from global central banks.

Money markets cut bets on interest rate cuts in the US, UK, and Eurozone on Monday as Middle East wars drove up oil prices and fueled inflation concerns. Swaps linked to policy meeting dates showed the probability of three Federal Reserve rate cuts in 2026 had fallen from nearly 50% last week to 20%. Traders no longer expect the Bank of England to cut rates three times this year and lowered the probability of a March rate cut from over 80% to 60%. They also halved the probability of a European Central Bank rate cut this year, pricing in only 5 basis points of room for a cut. Two-year yields in the US, UK, and Germany, the most sensitive to monetary policy changes, rose more than longer-term yields. This reflects a sharp jump in inflation gauges driven by the biggest rise in Brent crude prices in four years. Laura Cooper, global investment strategist and head of macro credit at Newwin Investments, said, “A sustained rise in oil prices will have a significant premium effect on the global economy and inflation path. A more sustained energy pulse could complicate the deinflation process and delay further rate cuts.” (Jinshi)