Why are traders increasing their bets on interest-rate hikes by the Bank of England and the European Central Bank?

Traders are boosting wagers on faster BOE and ECB rate hikes because surging oil prices—driven by escalating US-Iran tensions, including Trump’s reimposition of a blockade on Iranian ships in the Strait of Hormuz and payment demands for other cargo—have reignited inflation fears. The region’s heavy reliance on energy imports makes it highly vulnerable to soaring energy prices, threatening recent progress toward lower inflation in the UK and euro area.

What specific rate-hike expectations have changed for the BOE and ECB following the oil price surge?

For the first time in a month, traders are fully pricing in a 25-basis-point BOE hike by September and another before year-end; they also now expect the ECB to raise rates by 25 basis points in September, with a second hike by year-end considered all but certain—up from swaps that, at the start of the month, priced less than a quarter-point hike for either central bank through next year.