The European Central Bank's decision to raise interest rates by 25 basis points carries significant policy implications, signaling a pause in the eurozone's rate-cutting cycle and a restart of monetary tightening. It also sends a message to markets that the global battle against high inflation is not over, with external shocks like geopolitical conflicts continuing to disrupt prices and central banks holding firm on their anti-inflation commitments.

On the evening of June 11, Beijing time, the European Central Bank announced a 25 basis point increase across its three key interest rates, marking its first hike in nearly three years.

According to Liao Bo, Chief Macroeconomic Analyst at Northeast Securities, the ECB has become the first G7 central bank to initiate a rate hike in 2026, reflecting its desire for flexible monetary policy adjustments to stay ahead of the inflation curve.

The ECB's monetary policy decision on June 11 showed that baseline inflation forecasts for 2026 and 2027 were revised upwards due to rising energy prices.

Overall, Yang Chao, Chief Strategist at China Galaxy Securities, emphasized that if some central banks hike rates this round, it is not driven by economic overheating but is a passive, emergency response to inflation rebounding due to geopolitical conflicts pushing up oil prices, and does not signify a new, proactive tightening cycle. Most economies are experiencing weak recoveries, and their fundamentals do not support sustained, significant rate hikes. Therefore, the global central bank landscape will likely feature localized hikes and overall divergence, rather than a synchronized global wave of tightening.

In the week of June 15, other major global central banks such as the Federal Reserve, the Bank of Japan, the Bank of England, and the Reserve Bank of Australia will also announce their interest rate decisions. Many experts believe the Bank of Japan is expected to raise rates, while the Fed, the Bank of England, and the RBA are expected to hold steady.

Although major global central banks may not enter a full-fledged rate hike cycle, Yang Chao believes the ECB's move will reinforce the consensus that "global monetary policy will not ease rapidly," increasing short-term pressure on overall market risk appetite.

Hu Jie, a professor at the Shanghai Advanced Institute of Finance, Shanghai Jiao Tong University and a former senior economist at the Federal Reserve, believes that tightening liquidity will have a negative impact on financial markets. Currently, AI-related asset prices are already at high levels, causing unease about valuations. Meanwhile, the "accompaniment" of liquidity is changing its tune—the previously increasing abundance is beginning to stall, and some countries have even started raising rates.

First ECB Hike in Three Years

On June 11, the European Central Bank announced a 25 basis point hike across its three key interest rates, its first increase in nearly three years. The deposit facility rate, main refinancing rate, and marginal lending facility rate were raised to 2.25%, 2.40%, and 2.65% respectively, effective from June 17, 2026. Prior to this, the ECB had raised rates from July 2022 to September 2023, then held them steady; it entered a rate-cutting cycle in June 2024, followed by seven consecutive holds from July 2025 to April 2026.

The ECB's monetary policy decision released on June 11 shows that, under the baseline scenario of the latest Eurosystem staff projections, headline inflation is expected to average 3.0% in 2026, 2.3% in 2027, and 2.0% in 2028. For inflation excluding energy and food, the baseline scenario projects averages of 2.5% in 2026 and 2027, and 2.2% in 2028.

Zong Liang, a senior researcher at the World Financial Forum and former chief researcher at the Bank of China, believes the ECB's decision to hike this time can effectively address imported inflation. Rising oil prices increase costs across the energy, transportation, and industrial goods chains, thereby pushing up overall prices in the eurozone. Simultaneously, this move can help stabilize inflation expectations in the eurozone to some extent, preserving the proactivity of monetary policy.

Yang Chao stated that the core policy significance of the ECB's 25 basis point hike is the announcement that the eurozone's rate-cutting cycle has paused and a tightening stance has resumed. The market had previously widely expected a gradual shift towards easing by the ECB; this hike has completely reversed that expectation. It also signals to the market that global high inflation is not completely over, and external shocks like geopolitical conflicts will continue to disrupt prices, with central banks unwilling to loosen their anti-inflation bottom line.

Yang Chao further explained that, from a global perspective, the impact will transmit in layers. For other economies, renewed monetary tightening in Europe and the US will exacerbate the overall global liquidity tightening, particularly putting pressure on emerging markets. For countries with high foreign currency debt, exchange rate and debt servicing pressures will increase.

Meanwhile, some countries may benefit. Zong Liang believes that against the backdrop of the eurozone hiking rates, elevated energy prices, and the impact of rate hikes on economic growth, Europe may be more inclined to strengthen its willingness to cooperate with China and related nations.

Zong Liang noted that countries like Germany, France, and Italy, which previously relied on low-cost Russian energy, have already been significantly affected by the Russia-Ukraine conflict. The US-Iran conflict has worsened the situation, making energy a major challenge for Europe. Persistently high energy prices will severely undermine the competitiveness of its manufacturing sector. As a major manufacturing power, China stands to benefit from further trade cooperation with Europe.

Key Central Bank Week Approaches

Zong Liang believes that the European Central Bank, as one of the world's most important central banks, can set a leading signal for monetary policy tightening with its rate hike.

Nevertheless, Hu Jie believes it's still difficult to determine whether a full rate hike cycle will begin. Before the escalation of the Middle East situation, major global central banks were in a major rate-cutting cycle. Currently, that cutting cycle has stopped, entering a wait-and-see phase, with faster-acting central banks already starting to hike. Whether a sustained, longer-term rate hike cycle forms depends on whether the Middle East situation further deteriorates.

In the week of June 15, the Bank of Japan, the Federal Reserve, and the Bank of England, among others, will announce their rate decisions. Many experts believe the Bank of Japan will also raise rates.

Previously, Japan experienced a prolonged eight-year period of negative interest rates. The Bank of Japan announced a -0.1% rate on January 29, 2016, effective from February 16, 2016. In March 2024, the BoJ announced a rate hike, setting the policy rate in a range of 0% to 0.1%, and has continued to raise rates since, reaching 0.75% by December 2025.

Regarding this, Hu Jie stated that Japan is gradually adjusting its long-term, abnormally low benchmark interest rates back to normal levels, with inflation caused by the Strait of Hormuz issue providing an additional reason for faster hikes.

Simultaneously, Japan is highly dependent on energy imports from the Middle East. Data from Japan's Ministry of Economy, Trade and Industry shows that in May 2026, over 95% of Japan's crude oil imports came from the Middle East. Furthermore, a speech by BoJ Governor Ueda Kazuo on June 3, 2026, indicated that Japan's real interest rates remain relatively low, reflecting a relatively accommodative financial environment. Affected by the secondary spillover effects of inflation triggered by rising crude oil prices, Japan is more likely to experience an upward deviation in underlying inflation. The Bank of Japan believes it is necessary to formulate future policy decisions based on this premise.

Zong Liang believes Japan also faces other circumstances, such as the yen hitting the 160 level against the US dollar and remaining near that level. Therefore, it can be said that Japan is in more urgent need of an appropriate rate hike than other economies.

Regarding the United States, Hu Jie believes structural unemployment and the long-term trend of future inflation remain unclear, and he expects the Federal Reserve to hold steady during the week of June 15.

Data from the US Bureau of Labor Statistics on June 12 showed that US non-farm payrolls increased by 172,000 in May, far exceeding market expectations of 88,000, indicating the strong onset of AI-induced structural unemployment. An analytical report released by the Federal Reserve Bank of St. Louis on August 26, 2025, revealed the impact of AI on unemployment: between 2022 and 2025, occupations more affected by artificial intelligence saw larger increases in unemployment rates. Among them, computer and mathematical occupations—predictably among the most AI-affected—showed the steepest rise in unemployment.

Meanwhile, data from the US Department of Labor on June 10 showed that the US Consumer Price Index (CPI) rose 4.2% year-on-year in May, the highest since May 2023. Hu Jie added that if the Strait of Hormuz reopens soon, US inflation pressure could be largely resolved, and a rate cut could be discussed in 2026; if the situation continues to deteriorate, a rate hike could be added to the agenda.

In the UK, CPI has eased but remains relatively high. Data from the UK's Office for National Statistics' "UK Consumer Price Inflation" report published on May 20, 2026, showed that UK CPI rose 2.8% in the 12 months to April 2026, down from 3.3% in the 12 months to March.

Regarding this, Hu Jie believes UK inflation is still relatively high, and interest rates are at a restrictive level. If rates were hiked and maintained at a restrictive level long-term, it would suppress the economy, so the Bank of England is inclined to hold steady this time.

Unlike other countries, the Reserve Bank of Australia had already begun raising rates before the Middle East situation escalated, raising the cash rate to 3.85% in February 2026 and further to 4.35% in May 2026, marking its third consecutive hike since February 2026. Regarding the June meeting, Hu Jie believes that since the RBA has already hiked at three consecutive policy meetings, it may choose to wait and see this time. Liao Bo, however, believes that with strong consumer spending and rising house prices, the RBA may need to tighten further within 2026 to curb inflation.

Could Gold Fall to $3500?

Although major global central banks may not enter a full rate hike cycle, Hu Jie believes that tightening liquidity is expected to have a negative impact on financial markets. The market had previously widely expected the main theme to be the rapid development of AI, accompanied by gradually easing liquidity. Currently, while AI growth momentum persists, related asset prices are already at high levels, causing unease about valuations. Meanwhile, the liquidity "accompaniment" seems to be changing its tune—the previously increasing abundance is beginning to stall, and some countries have even started raising rates.

Regarding gold, which had previously fallen into a downtrend—using the LBMA Gold Price (PM Fix, USD) as a benchmark, gold has fallen over 23% from the escalation of the Middle East situation on February 28 to June 11—Yang Zirong, Deputy Director of the Global Macroeconomics Research Office at the Institute of World Economics and Politics, Chinese Academy of Social Sciences, believes that the long-term price center of gold has substantially shifted upward. Even after a deep correction, its bottom will be significantly higher than its position at the start of this bull market. Furthermore, the stormy, one-sided surge phase may have ended, making a repeat of the sharp rise seen between 2023 and 2025 unlikely in the future. Whether gold prices can return to or even surpass previous highs will depend heavily on the extent of global monetary policy easing and the repair of market sentiment.

As of 11:32 on June 12, spot gold was trading at $4201.99 per ounce against the US dollar, showing some rebound compared to June 11.

On whether one should "buy the dip" in gold, Lu Zijie, Head of Wealth Management for China at UBS, stated at a media briefing on June 9 that current gold positioning is still insufficient. The current decline in gold prices presents a good opportunity to increase exposure.

She revealed that many family offices and investors had previously intended to increase their gold allocations. At that time, gold prices were high, and UBS had advised clients to wait for a better entry point; the current price level is more suitable for "slowly" accumulating gold. She maintains a long-term bullish view on gold, expecting prices to reach $5500 per ounce by the end of 2026.

Regarding "slowly," Lu Zijie believes that although she cannot specify a timeframe like a month or a week, one needs to watch the overall market trend. The market is influenced by many factors, and she personally believes the key still lies in geopolitics. If a truly peaceful geopolitical environment cannot be achieved, then inflation remains a factor to consider.

Hu Jie, however, believes that gold does not generate cash flow returns and is a sentiment-driven asset, making sentiment the key observation point. Current sentiment can be summarized in two words: First, "indifference," meaning fewer people are paying attention, unlike before when people often asked at dinner whether to buy gold. Second, "fear." A year ago, when retail investors participated in gold trading, market sentiment was optimistic and fearless; now there is widespread panic, the market is extremely fragile, and even minor news causes worry. The drivers behind sentiment are complex, with participants having diverse backgrounds and various narratives driving their emotions, such as hedging against inflation, hedging against fiat currency uncertainty, central bank gold buying, and geopolitics. Some of these narratives have logical and data support, some do not, but all can drive sentiment, which in turn drives buying and selling orders. In short, because gold prices are driven by sentiment and lack fundamental "anchors," volatility is extremely high.

Citibank stated in a research report released on June 8 that gold prices are biased to the downside in the short term, and buying the dip here is only worthwhile if one firmly believes the Middle East situation will not escalate again. Long-term, Citibank maintains a bullish view on gold, but "for anyone without extremely wide stop-losses and a longer-term investment horizon, near-term risks are extremely high."

Citibank analysts forecast that if the closure of the Strait of Hormuz persists into late summer, gold prices could fall as low as $3500 per ounce.