Germany's June inflation rate fell to 2.4% from 2.7% in May, beating analyst expectations of a 2.5% decline. The statistics office attributed the slowdown to more moderate energy cost increases, as global oil prices retreat amid easing Middle East tensions. This marks the second consecutive monthly decrease after inflation peaked at 2.9% earlier in the year.

France reported a surprisingly sharp drop back to the 2% level targeted by the European Central Bank, while Italy's rate moderated to 3.1%. The rapid energy market retreat since regional conflicts moved toward resolution is reducing fuel costs that had surged during the Iran conflict period. Traders now doubt another interest-rate hike will occur this year.

However, Bundesbank President Joachim Nagel warned that the energy-price shock remains active in the system. At the ECB symposium in Sintra, Portugal, Chief Economist Philip Lane emphasized monitoring how recent energy-cost increases affect food and services inflation. Officials remain cautious despite diplomatic progress on the Strait of Hormuz.

Euro-zone inflation data releases Wednesday, with analysts forecasting a slowdown to 3% from 3.2%. Bloomberg Economics notes the US-Iran deal continues pushing oil prices lower, keeping baseline inflation forecasts intact while reinforcing expectations for euro-area price deceleration through the remainder of 2024.