The ECB chose to keep interest rates unchanged after its last meeting, but President Christine Lagarde noted that “downside risks to growth prospects have risen sharply as a result of the war in Ukraine.” Inflation will remain high in the coming months, mainly due to rising energy costs, he added. The euro fell as much as 1.2 percent against the dollar after Lagarde’s comments, to a two-year low of just under $ 1.08. He later recovered some of the losses to trade 0.5% lower for the day. Carsten Brzeski, head of macroeconomics at ING Research, attributed the currency’s fall to investors’ “ahead” in recent weeks, expecting eight interest rate hikes by the end of 2023. “Lagarde’s comments today, however, confirmed the rather gradual normalization process,” he said. The central bank said the financial data released since its last meeting “strengthens the expectation” that its asset purchase program (APP) should be completed in the third quarter of the year. However, Frederik Ducrozet, general manager of Pictet Wealth Management, said the fall in the currency was due to Lagarde’s lack of “strong indication or firm commitment” that the APP would expire in June. “It is a reaction to the attitude of the markets in view of the conference,” he said. Inflation in the euro area moved higher last year, with prices rising to 7.5 percent last month. Both the US Federal Reserve and the Bank of England have already begun raising interest rates in a bid to curb sharp price increases, but the ECB has said it must first stop buying bonds before raising borrowing costs. ECB policymakers must also balance the impact of the war on Ukraine, which is expected to have a huge impact on Europe’s economy. “The supply shock of the war is a difficult compensation for the board, given the weaker growth and higher inflation,” Goldman Sachs analysts said. The investment bank expects the ECB to raise interest rates in September, but said an increase in July would not be ruled out if inflationary pressures increase. Eurozone government bonds weakened following the ECB decision. The yield on the 10-year German bond rose 0.08 percentage points to 0.84%, while the Italian equivalent also added 0.11 percentage points to 2.48%. Yields increase when prices fall. The Stoxx Europe 600 regional index rose 0.7 percent, with Germany’s Dax up 0.6 percent and France’s Cac up 0.7 percent. The FTSE 100 in London rose 0.5%. In the US, a recent bond rally was reversed, with the benchmark 10-year government debt index jumping 0.13 percentage points to 2.83%. Unexpectedly weak core inflation data earlier this week had led investors to lower their expectations about how aggressively the Federal Reserve would raise interest rates, causing bond prices to rally. However, in an interview on Thursday, John Williams, president of the New York Federal Reserve, stressed the need to move interest rates “back to more neutral levels.” Wall Street S&P 500 main index fell 1.2%, after rising 1.1% in the previous session. Nasdaq Composite technology heavy lost 2.1%. Oil prices rose on Thursday, with international Brent crude oil up 2.7% to $ 111.70 a barrel. In Asia, Hong Kong’s Hang Seng index rose 0.7 percent and China’s CSI 300 rose 1.3 percent. Japan’s Topix rose 1 percent and South Korea’s Kospi traded steadily.
