High oil prices push up inflation pressure. Vanguard predicts that the European Central Bank may continue to raise interest rates in the coming months.

Against the backdrop of soaring energy prices and heightened inflation, the policy outlook of the European Central Bank (ECB) has once again caught the market's attention. Vanguard's asset management division believes that even if a ceasefire agreement is reached between the US and Iran, the ECB may continue to raise interest rates in the coming months. Ales Koutny, head of international interest rates for Vanguard's actively managed funds, stated that if oil prices remain around $100 per barrel before the summer, there is a "considerable likelihood" that the ECB will raise interest rates by 25 basis points in June and July, respectively. Even if oil prices fall to around $95, it still falls within the range where the "central bank needs to raise interest rates." This assessment is clearly hawkish compared to current market expectations. The market has already factored in expectations of a rate hike in June, but the probability of another rate hike in July is less than 50%. Previously, when Trump's comments led to a drop in oil prices to around $90 per barrel, the market briefly reduced its bets on rate hikes, causing German bond prices to rise. Koutny further pointed out that if the ECB raises interest rates twice in a row, the euro could rise to $1.25 by the end of the year, an increase of nearly 7% from the current level, reaching an eight-year high. This forecast is in line with the highest expectations in market surveys. Additionally, he emphasized that the subsidies introduced by European governments to alleviate the impact of rising energy prices on households, as well as increased fiscal spending for defense, could further push inflation pressure and strengthen the need for tighter central bank policy.