A few weeks ago, traders were pricing in a significantly more aggressive ECB tightening cycle. Now, they’ve cooled off. Money markets currently reflect roughly 40 basis points of total European Central Bank rate increases for 2026, a meaningful pullback from earlier projections that had, at one point, exceeded 75 basis points.

What’s behind the shift

The ECB’s deposit facility rate currently sits at 2.00%. If the central bank delivers the widely expected 25 basis point hike at its June 11 meeting, that rate would climb to 2.25%, marking the first increase since September 2023.

Market-implied probabilities for that June hike range between 91% and 97%.

Earlier this year, surging energy prices driven by geopolitical instability, particularly tensions involving Iran and associated supply disruptions, had traders betting on a much steeper rate path. At peak anxiety, markets were pricing in more than three rate hikes for the year. Reports of ceasefire progress in the Iran conflict appear to have deflated some of the more aggressive positioning, bringing total expected hikes down from more than 75 basis points to roughly 40.

Economists largely agree

According to Reuters polls, over 85% of economists support the anticipated June rate hike. Many of those same economists forecast at least one additional increase before the year is out.

What this means for investors

For traditional fixed-income markets, rising rates push bond prices lower and yields higher. European bank stocks tend to benefit from rising rate environments, as wider net interest margins boost profitability. Rate-sensitive sectors like real estate and utilities typically face headwinds when borrowing costs climb.

The fact that expectations have come down from 75-plus basis points to roughly 40 is the more crypto-friendly development. A less aggressive ECB means less liquidity withdrawal than feared, which provides a somewhat better backdrop for risk assets than the scenario traders were pricing just weeks ago.

Energy prices remain the swing factor. If Iran-related tensions flare up again, those 40 basis points could quickly become 60 or more. The June 11 meeting will set the tone, but the real information will come from the ECB’s updated economic projections and forward guidance that accompany it.