US-Iran deal eases Hormuz tension, trims ECB hike outlook

A preliminary agreement between the United States and Iran to end hostilities and reopen the Strait of Hormuz has prompted a cautious welcome from European Central Bank President Christine Lagarde, while her colleague Joachim Nagel warned it would bring no immediate relief to high euro zone inflation. The announcement, made overnight, triggered a sharp drop in oil prices and led investors to scale back expectations for future ECB interest rate increases.

Lagarde, speaking to France Culture radio on Monday, expressed optimism that the diplomatic development could help restore the flow of energy through the critical shipping gateway. She stated that if the news is confirmed by developments in the coming days and a memorandum of understanding is signed, it is good news that can only be welcomed. Her remarks followed the ECB's decision last week to raise interest rates for the first time in nearly three years, an effort to curb inflation driven in part by unprecedented supply disruptions linked to the conflict.

Financial markets reacted swiftly to the prospect of reduced geopolitical risk. Investors, who had largely been betting on two more ECB rate hikes over the next year, pared...