Nomura\u2019s Global Markets Research team reports that wage pressures in the euro area may keep inflation risks elevated in 2027\u20132028. It says markets already expect the ECB\u2019s next move to be rate rises rather than cuts.<\/p>\n
Financial markets are pricing 13bp of rate hikes by December 2027 and 37bp by December 2028. The note also refers to an increasingly tight labour market as a source of medium-term upside inflation risk.<\/p>\n
The research states that inflation risks in 2026 are skewed to the downside, while risks in 2027 and especially 2028 are skewed to the upside. It links this to wage growth pressures and GDP growth above potential in 2026 and 2027.<\/p>\n
Nomura expects two 25bp rate increases in 2028, pencilled in for March and September 2028. It adds that there is a risk of earlier and more hikes if inflation pressures are stronger than expected.<\/p>\n
The note describes conditions it compares to a pre-financial crisis period, with tight labour markets, unemployment below equilibrium, and growth above potential. It says only Germany has spare services output capacity, while the euro area, France and Italy are running modestly hot.<\/p>\n
The article states it was created with an AI tool and reviewed by an editor, and attributes the content to the FXStreet Insights Team.<\/p>\n
We see persistent wage pressures in the Euro area creating a solid floor for inflation in the coming years. The latest data supports this, with negotiated wage growth holding firm at 4.3% year-over-year in the final quarter of 2025, well above the ECB’s comfort zone. This makes it far more likely the ECB’s next move will be a hike, not a cut.<\/p>\n
The labour market remains exceptionally tight, reinforcing this view. Eurostat’s most recent release showed the unemployment rate at a record low of 6.4% in December 2025, which provides workers with significant bargaining power. We believe this tightness will continue, feeding into domestic inflation as we head into 2027 and 2028.<\/p>\n
For the coming weeks, a disconnect exists between this long-term view and the market’s focus on softer inflation prints in early 2026. While inflation risks are skewed down for this year, the real story is the upside risk for 2027-2028 that the ECB is watching. This suggests that current market pricing, which only implies about 37 basis points of hikes by the end of 2028, is too modest.<\/p>\n
This situation presents an opportunity in interest rate derivatives. We should consider positioning for a steeper yield curve, where long-term rates rise more than short-term rates. One way to express this is by entering forward-starting interest rate swaps to pay a fixed rate in 2027 or 2028, betting that the market will eventually price in more aggressive ECB action.<\/p>\n
We saw a similar pattern in 2025, when the market prematurely priced in rate cuts that never fully materialized because of stubborn services inflation. That experience suggests we should be wary of underestimating the ECB’s resolve when faced with ongoing domestic price pressures. The current economic environment, with above-potential growth in most of the Eurozone except Germany, feels much like the pre-financial crisis era.<\/p>\n
This outlook should also be supportive for the Euro over the medium term. As the market eventually shifts its focus from the temporary softness in 2026 to the more hawkish reality of 2027-2028, the single currency should find strength. Therefore, using options to build long EUR positions against currencies with a more dovish central bank outlook could be a prudent strategy.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" Nomura warns eurozone wage pressures may lift inflation in 2027\u201328; markets price ECB hikes, expecting two in 2028.<\/p>\n","protected":false},"author":62,"featured_media":17027,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-41706","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/41706","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/users\/62"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/comments?post=41706"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/41706\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media\/17027"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=41706"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=41706"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=41706"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}