Traders are increasing their bets on the European Central Bank tightening policy, with the key rate expected to reach zero by the end of the year.

Money markets are anticipating a tightening of roughly 50 basis points by December, which would bring an end to seven years of negative deposit rates. The move follows bets placed on Thursday in response to ECB President Christine Lagarde's comments, during which she stated that policymakers are no longer ruling out an interest rate hike this year.

Money Markets have also pulled their bets forward on the first 10 BPS rate rise by the ECB to June 2022.

ECB stays put as inflation races ahead – POLITICO

Banks are rushing to make changes to their forecasts. Goldman Sachs is one of the firms that has altered its forecasts, predicting that the deposit rate will reach 0% in December. The ECB's key rate is currently at a historic low of minus 0.50%.

After finally acknowledging increasing inflation risks at a policy review on Thursday, Goldman Sachs expects the ECB to hike its deposit rate by 25 basis points in September and December.

Goldman Sachs strategists predict policymakers will decide in March to stop the asset purchase programme by June and boost the deposit rate by 25 basis points in September and December, according to a report released on Friday.

"Following huge upside inflation surprises and yesterday's hawkish policy pivot, we now anticipate a substantially earlier ECB exit," the US investment bank's strategists said, raising their inflation forecasts.

It was a pivot that aligns the ECB's approach more with that of global peers such as the Bank of England and the Federal Reserve, to deal with inflation running at the quickest pace in decades.