European inflation is accelerating sharply, with the annual rate for eurozone countries jumping to 2.5 percent in March from 1.9 percent in February. Natural gas prices have surged 40 percent since late February following U.S.-Israeli strikes on Iran. The conflict has disrupted energy supplies and global trade flows, pushing inflation higher across the region.

Investors are now betting that both the European Central Bank and Bank of England will raise interest rates this year, reversing earlier expectations of rate cuts or holds. Christine Lagarde, president of the ECB, has warned that the economic impact will persist as energy production in the Persian Gulf takes time to restore. She emphasized the central bank would act decisively to return inflation to its 2 percent target.

Futures markets indicate traders expect at least two quarter-point rate increases by the ECB this year, possibly starting this month. The Bank of England is also projected to raise rates one or two times, with inflation in Britain already above 3 percent before the conflict. The central bank now projects inflation at 3.5 percent in March, significantly higher than previous forecasts, and expects it to remain around 3 percent through the third quarter.