Doubts Creep Into Wagers on 75 Basis Point ECB Hike This Week

Traders’ conviction that the European Central Bank will deliver a 75 basis point interest-rate hike at Thursday’s policy meeting has receded slightly amid mounting concerns about the region’s economy.

Swaps tied to ECB meetings show that money markets are pricing in a 66 basis point increase, about 3 basis points less than a recent high. It will be the ECB’s first monetary policy meeting since July, when officials raised the key rate for the first time since 2011.

German data added to concerns on Tuesday, as factory orders in Europe’s largest economy fell for a sixth month. A deep euro-area recession could damp inflation, limiting the need for aggressive tightening.

Still, the majority of economists surveyed by Bloomberg expect a 75 basis point raise. Searing inflation has bolstered bets on a large move and Governing Council members have committed to lift policy above the so-called neutral rate if necessary.

European bonds rallied Tuesday, led by shorter maturities. The two-year German yield — which is the most sensitive to changes in monetary policy — is about 5 basis points lower at 1.08%, around 20 basis points below a recent peak on Sept. 1.

Read more: ECB’s Kazaks Says Broad, Protracted Recession Could Slow Hikes