Published research this week points to a steeper euro-area yield curve as the base case, contingent on the ECB delivering one final hike in September and then pausing.
The reasoning, as laid out by researchers: the energy shock is expected to produce an inflation overshoot that is real but not persistent, meaning the ECB shouldn't need to keep tightening beyond September. Short-end rates would stabilise after that final hike, while the long end stays under pressure from elevated term premia — a reflection of geopolitical risk and fiscal worries. The result is a steeper curve. Into the September meeting itself, the same research flags tactical upward pressure on euro money market rates as traders position for the move.
The same analysts also spell out an alternative path, not a rival view: if Middle East tensions make inflation stickier and force the ECB to overtighten, the curve could instead flatten, potentially inverting between 2- and 5-year maturities. Which scenario plays out hinges on whether September is truly the last hike.