The European Central Bank left benchmark borrowing costs unchanged while highlighting elevated inflation risks stemming from energy prices. Currency markets reacted by sending the shared currency down 0.4% against the dollar to $1.1107, its weakest valuation since May of last year. Regional equities gained ground, with the STOXX 600 index advancing 1%, even as benchmark German government debt yields slipped lower across the curve.
Key points
Rising energy expenses are stoking persistent inflation concerns that could prompt a Euro…: Rising energy expenses are stoking persistent inflation concerns that could prompt a European Central Bank interest rate hike in December.
European equity markets demonstrated resilience following the rate pause, propelling the…: European equity markets demonstrated resilience following the rate pause, propelling the broad STOXX 600 index upward by 1%.
Regional sovereign bond yields retreated after the policy hold, with the rate-sensitive G…: Regional sovereign bond yields retreated after the policy hold, with the rate-sensitive German Schatz yield falling 5 basis points to 3.049%.
Sources checked by our analysis pipeline: 1
However, the central bank warned inflation risks were on the rise from surging energy costs, which may solidify market bets for a December rate hike.
Market focus will now shift to a press conference by leaders of the central bank due at 1345 GMT, for clues about the outlook for interest rates.
President Christine Lagarde herself will also be in focus. Earlier in the day, she announced that she will step down on February 7, ahead of schedule.
The euro was last down 0.4% at $1.1107, extending an earlier fall that took it to its lowest since May last year. It dropped to its lowest in 18 months on the pound just before the rate decision, and was last at 83.48 pence.
Germany's 10-year bond yield, which serves as the euro zone benchmark, was last down 4 basis points at 3.34%, while the yield on the rate-sensitive Schatz was down 5 bps at 3.049%, each a whisker lower than before the decision.
European stocks rose slightly after the decision. The broad STOXX 600 was up 1%
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