French risk premium hits post-2012 high as debt markets weaken

Money markets show traders see the ECB benchmark rate close to 3% by year-end from 2.5% now, and around 3.27% by March, implying another three rate hikes in the coming six months.

Global central banks have escalated their fight against inflation, with the US Federal Reserve and Bank of Japan following the European Central Bank in raising interest rates, while the Bank of England left them unchanged, but signalled it too could raise borrowing costs if energy-driven inflation stemming from conflict in the Middle East worsens.

Central banks are likely to reinforce their tightening bias after the Fed adopted a more restrictive stance on Wednesday. However, investors continue to bet on a more aggressive rate path than that outlined by US policymakers in the dot plot.

"For now, risks remain skewed towards higher inflation, with central banks focused on rates and the easing in financial conditions. The bigger uncertainty is whether markets have already priced terminal rates that prove difficult to deliver," Mizuho strategists Evelyne Gomez-Liechti and Masayuki Nakajima said in a note.