Elevated inflation pressures from Middle East geopolitical tensions have driven the ECB to hike its deposit facility rate to 2.50% in September 2026, with staff projections holding headline inflation at 3.0% for the full year—well above the 2% target. This tightening cycle, reinforced by resilient euro-area growth and upward revisions to 2027–2028 inflation forecasts, underpins the 95.5% market-implied odds against any rate cut in 2026. Traders price in the likelihood of one additional hike by year-end and sustained restrictive policy amid energy shocks and stable long-term expectations. Tail risks include a rapid de-escalation in energy markets or sharper-than-expected growth slowdown that accelerates disinflation, though current data-dependent guidance leaves little scope for easing before 2027.