Traders significantly reduced their bets on the European Central Bank tightening monetary policy on Wednesday, now anticipating fewer than two interest rate hikes by 2026. This shift in sentiment followed a drop in oil prices triggered by news of a ceasefire arrangement between Iran and the United States.

Interest rate swaps now indicate that markets are pricing in 49 basis points of rate hikes from the ECB by the end of this year, a decrease of 32 basis points compared to Tuesday's levels. This represents the least hawkish market pricing observed since the ECB's policy meeting on March 19, where interest rates were left unchanged.

European government bonds rallied strongly on Wednesday. Germany's benchmark bond yield fell by 18 basis points, while Italy's yield dropped by as much as 30 basis points. The market movement coincided with Brent crude futures falling 16% to drop below $92 per barrel, a development that reduces perceived inflation risks.