Persistent euro area inflation near 3.8%—well above the ECB’s 2% target—driven by energy price surges from Middle East conflicts has led the central bank to raise its deposit facility rate to 2.50% in September 2026, with markets and economists pricing another 25-basis-point hike in December. Recent staff projections show headline inflation averaging 3.0% for 2026 and core measures remaining elevated, while resilient growth and anchored long-term expectations support a data-dependent tightening path through year-end. This backdrop underpins the 95.5% market-implied probability against any rate cut in 2026, as traders see limited scope for easing amid upside inflation risks. Tail scenarios include rapid de-escalation of geopolitical tensions or a sharper-than-expected growth slowdown that could shift the policy stance later in the year.