FX.co ★ Italy’s BTP Yields Drop on Middle East Hopes

Italy’s 10-year BTP yield declined to 3.86%, pulling back from its two-year peak as improving sentiment over a potential de-escalation in the Middle East supported risk assets. News of a reported US peace proposal to Tehran—despite Iran’s rejection—pushed Brent crude below $100 per barrel, tempering concerns that elevated energy prices could further stoke inflation. As a result, expectations for monetary tightening eased, with markets now pricing in just two ECB rate hikes this year, down from three. At the same time, ECB President Christine Lagarde reiterated that the central bank stands ready to act “at any meeting” if surging energy costs threaten to feed broader inflationary pressures. On the data front, Eurozone business activity suffered a sharp setback in March, dropping to a 10-month low, while input costs rose at their fastest pace in more than three years amid escalating energy prices and persistent supply chain disruptions.