Eurozone June CPI falls to 2.8%: Urgency for rate hikes sharply declines; ECB enters a data-dependent neutral phase.

Recently, international oil prices have retreated to pre-conflict levels following the U.S.-Iran extension of their ceasefire agreement and the resumption of navigation through the Strait of Hormuz—becoming a key factor driving down inflation. After the data release, markets further scaled back expectations for additional European Central Bank (ECB) rate hikes. Previously, investors widely anticipated at least one more 25-basis-point hike by the ECB this year; however, following the latest inflation figures, interest rate swap markets show a marked cooling of that expectation. Energy risks persist—ECB remains cautious Although markets are reassessing the policy path, ECB officials broadly agree it is premature to declare victory over inflation. Philip Lane, the ECB’s Chief Economist, stated that the key issue now is whether the energy cost increases observed over the past four months will continue to feed into food and services prices. He said: "We will continue deciding on a meeting-by-meeting basis, without pre-committing to any future interest-rate path." Olaf Sleijpen, Governor of the Netherlands Bank, also noted that the recent oil price decline is undoubtedly positive for inflation control—but cautioned that the "lagged effects" of earlier energy price surges still warrant close monitoring. Joachim Nagel, President of the German Bundesbank, maintained a relatively hawkish stance, arguing that the energy-price shock triggered by Middle East tensions "has not yet fully exited the system," and that inflation will remain above the ECB’s 2% target for some time. Pierre Wunsch, Governor of the National Bank of Belgium, stated that the ECB could still raise rates further if future data warrants it—but emphasized that market expectations for additional tightening have clearly declined since June. Wages and second-round effects remain pivotal for September decision Some officials believe the easing of Middle East tensions has reduced the immediate urgency for another rate hike—but new inflation risks have not entirely vanished. Martin Kocher, Governor of the Austrian National Bank, indicated that the ECB’s likely choice at its next few meetings will lie between "continuing to hike" and "holding rates steady"—not discussing cuts. He pointed out that if wage negotiations this autumn drive continued rapid wage growth, service-sector inflation could persist, sustaining underlying price pressures. Torsten Slok, Chief Economist at Apollo Global Management, likewise argued that even though energy prices have fallen significantly, the ECB may retain the option of a further hike in September—to confirm definitively that no pronounced second-round inflation effects are emerging.

WTI crude breaks below $70: Geopolitical premium fully erased; dual blow to inflation and rate-hike expectations.

International oil prices plunged sharply on Wednesday, with U.S. WTI crude futures falling below the $70-per-barrel threshold and Brent crude hitting its lowest level since just before the outbreak of the Iran war. As stranded tankers gradually departed the Strait of Hormuz, market expectations for Iranian supply returning to global markets surged rapidly—and the war-related risk premium accelerated its retreat. WTI crude futures dropped 4.6% in a single day to $69.87 per barrel—the lowest since March 2—and Brent crude fell $3.42 to $73.65 per barrel, with an intraday low of $73.22 approaching the February 27 closing price—the day before the U.S. and Israel launched airstrikes against Iran. The oil price decline simultaneously pulled down U.S. Treasury yields: the 10-year yield fell to 4.407%, retreating to the level seen before the Federal Reserve released its unexpectedly hawkish rate projections last week—signaling a clear easing of inflation concerns. Meanwhile, falling oil prices are reshaping global monetary policy expectations. Nomura Securities and RBC Capital Markets both downgraded their ECB rate-hike forecasts on Tuesday. The eurozone’s one-year inflation swap rate plummeted from nearly 3.90% a month ago to 2.45%, while the UK’s two-year inflation swap rate also reverted to pre-war levels. The rapid retreat in energy prices is freeing up policy space for central banks previously trapped in a “dual spiral” of exchange-rate volatility and inflation. Hormuz unblocked: Stranded tankers gradually depart According to shipping data cited by Reuters, three tankers were sailing out of the Strait of Hormuz on Wednesday, carrying approximately 5 million barrels of crude oil—two bound for Asia. Crude cargoes previously stranded in the Gulf due to wartime factors are now being gradually released as the U.S.-Iran interim agreement takes effect. Oman has announced that the Strait of Hormuz remains open to shipping, imposes no transit fees, and has designated temporary shipping lanes on both the northern and southern sides of the existing channel to ensure vessel safety. Physical crude market behavior confirms the abrupt shift in supply expectations—global spot crude differentials have all turned into discounts, and trade flows are shifting accordingly. Tim Waterer, Chief Market Analyst at KCM Trade, stated: "Although these are only early signals, the market is already pricing in the full scenario of Iranian oil re-entering global markets and the Strait of Hormuz returning to normal operations." He added: "If sanctions are eased, given the large volume of crude currently stored aboard tankers, Iranian output and exports could ramp up quite rapidly—we’re talking weeks, not months." Supply expectations dominate pricing; geopolitical premium accelerates its exit The core driver behind this oil price decline is the market’s pricing-in of a large-scale return of Iranian oil supply. Washington has granted Tehran a 60-day sanctions waiver, permitting Iranian oil sales during negotiations; concurrently, tensions in Lebanon have also eased. These two developments, taken together, have rapidly erased the geopolitical risk premium that had previously underpinned oil prices.

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