Rates Spark: Oil Drives Rates More Than ECB Speak

By Michiel Tukker of ING Think

Economic and Financial Analysis • Jul 24, 2026 at 3:30 AM EDT

Oil prices now drive euro rates more than ECB policy, with the front end surging as Brent tests $100.

No move from the ECB as expected, but a September hike remains almost fully priced in. Oil is still the prime driver of euro rates, although the impact is now more muted at the long end of the curve. Markets continue to price in more second-round inflation effects as oil prices remain elevated

Front end fully driven by oil, long end less so

Yesterday's ECB meeting made clear that oil is in the driving seat. Intraday prices did little to suggest that there was a monetary policy meeting at all on Thursday. The challenge for both the ECB and markets is predicting second-round inflation risks. Markets are still seeing the risk of second-round effects growing as oil prices remain elevated, and until we have better data on underlying price pressures, uncertainty will linger. For that reason, markets are likely to stick to their script and closely follow oil prices.

Meanwhile, oil is testing above $100 per barrel again, pushing up the front end, but longer rates are not following through as quickly. If we isolate the long term by looking at 5Y5Y forwards in euro swaps, we see very little movement over the last few trading days. In effect, that means that 10Y rates may find more resistance to move higher from here. This is in contrast to 2Y rates, which remain highly sensitive to any moves. For every $10 increase in Brent, we see the 2Y euro swap rise by some 15bp.

Friday's events and market view

The highlight in terms of data will be eurozone PMI figures. Consensus sees the eurozone composite index increasing from 50.0 to 50.2, which would suggest a gradual recovery. A small uptick is also pencilled in for the US PMI numbers.

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