Recent developments in the Middle East, including renewed tensions and oil prices rising back above $100 per barrel, have significantly increased global inflation risks. The market is closely watching the upcoming monetary policy meetings of the Federal Reserve, the Bank of England, and the European Central Bank for their actions against inflation and potential rate hike outlooks.

The key focus is on the Federal Reserve's policy direction. Since the conflicts began fluctuating in February, expectations of disrupted energy transport through the Strait of Hormuz have pushed global energy costs higher. Investors have sold off sovereign bonds en masse, pushing yields on US 10-year Treasury notes to their highest in 18 months. Additionally, a strong US labor market, with weekly jobless claims hitting their lowest since 1969, and a June inflation rate of 3.5%—still well above the 2% target—have strengthened the case for a near-term rate hike. Market pricing now suggests a 31.5% probability that Fed Chair Kevin Warsh will announce a rate hike at his second monetary policy meeting next week, with a first full rate hike expected by September. Analysts note that the better-than-expected inflation and employment data provide substantial grounds for a Fed rate increase.

In Europe, the Bank of England faces the dual challenge of sluggish economic growth and potential inflation resurgence. Although UK inflation fell to a 15-month low of 2.6% in June, the market widely expects the BoE to hold its benchmark rate at 3.75% at its meeting this Thursday. However, surging global energy prices have triggered a sell-off in short-term UK government bonds. Economists emphasize that the volatile energy prices pose a major risk to future inflation indicators. Close attention is being paid to whether BoE Governor Andrew Bailey will signal a tightening path for the rest of the year.

Meanwhile, the European Central Bank is also facing upward inflation pressures. ECB President Christine Lagarde warned of downside risks to economic growth and upside risks to inflation when she kept the policy rate at 2.25% on July 23. Latest economic forecasts suggest that despite high energy prices and geopolitical shocks, Eurozone GDP growth for the second quarter is expected to remain at 0.2%, while the July inflation rate is projected to edge up to 2.9%. Market analysts generally believe the ECB is still assessing the actual impact of the energy shock on core inflation, and further policy adjustments will require more economic data.