Why have traders reduced their bets on an ECB rate hike by the end of 2026?

Traders have reduced their bets on an ECB rate hike by the end of 2026 because sliding oil prices—driven by an interim peace deal between the US and Iran—have eased inflation pressures in the euro area, causing the two-year inflation swap gauge to fall below 2.2% from over 3% in April, thereby diminishing the perceived need for further tightening.

What is the current market expectation for the ECB's key deposit rate by end-2026, and how has it changed recently?

Markets are no longer pricing in a full quarter-point rate increase that would lift the ECB's key deposit rate to 2.5% by the end of 2026—a scenario that was fully priced in just two weeks prior, before the ECB raised the deposit rate to 2.25%; this shift reflects renewed market skepticism about the necessity of further hikes amid falling oil prices and softening inflation indicators.