Volkswacht Bodensee - Euro jumps after ECB raises rates but stocks diverge

The ECB delivered the widely expected quarter-point rate increase, but it also warned of persistent inflation and slower growth.

"More interesting is the Bank's new forecasts and guidance, the overall message from which is that policymakers' work is not done," said Jack Allen-Reynolds, deputy chief eurozone economist at Capital Economics.

The ECB raised its inflation forecasts and warned that consumer price increases will remain "too high for too long".

Inflation in the bloc slowed to 6.1 percent in May year-on-year, but remains more than three times the ECB's two-percent target.

Eurozone stocks fell further after the announcement by the ECB, which trimmed its growth forecast for the bloc which recent data showed fell into recession over the winter.

A day earlier, the Fed paused its rate-hiking cycle, but it signalled more rate hikes are to come.

Central banks hike rates in efforts to dampen inflation, but this also hurts economic activity, ramps up loan repayments and weighs on investor sentiment.

- 'Hawkish' -

"Central banks remain... hawkish" owing to stubbornly-high inflation, OANDA analyst Craig Erlam told AFP.

"The Fed paused but forecast two more rate hikes, while the ECB will likely push back against the idea of a pause at this point after hiking today."

ECB chief Christine Lagarde did just that at her traditional post-rate meeting press conference, saying the central bank was "not done" with its battle to bring down inflation.

"Unless there is a material change to our baseline, we will continue to hike at our next meeting (in July). So we're not thinking about pausing," Lagarde told journalists after bringing rates up to their highest level since 2001.

Erlam said that prior to Thursday's meeting there were expectations that the ECB might pause.

Eurozone stocks trimmed their losses, with Paris ending the day down 0.5 percent and Frankfurt 0.1 percent.

Fed policymakers opted Wednesday to freeze borrowing costs, having implemented 10 straight hikes since early 2022.

However, they signalled more increases were likely later in the year as inflation was still double the bank's target rate and the jobs market remained tight.

The move to hold rates at 5.0-5.25 percent came a day after figures showed prices rose 4.0 percent last month on an annual comparison, the slowest pace since March 2021.

The reading added to hopes the Fed could guide the economy to a soft landing and eased worries the United States could tip into recession.

A slew of economic data released early Thursday mostly confirmed that narrative, helping Wall Street stocks push higher after having finished mixed on Wednesday following the Fed's rate decision.

Investors also digested news that China's central bank had cut a key interest rate in a bid to boost activity in the struggling Asian powerhouse economy.

Elsewhere Thursday, Europe's reference gas price hit a two-month high on falling supplies from major producer Norway, which has suffered pipe leaks and maintenance shutdowns.

Norway has become Europe's biggest gas supplier in the wake of Russia's war on neighbouring Ukraine.

- Key figures around 1530 GMT -

New York - Dow: UP 1.1 percent at 34,351.78 points

London - FTSE 100: UP 0.3 percent at 7,628.26 (close)

Frankfurt - DAX: DOWN 0.1 percent at 16,290.12 (close)

Paris - CAC 40: DOWN 0.5 percent at 7,290.91 (close)

EURO STOXX 50: DOWN 0.3 percent at 4,365.12 (close)

Tokyo - Nikkei 225: DOWN 0.1 percent at 33,485.49 (close)

Hong Kong - Hang Seng Index: UP 2.2 percent at 19,828.92 (close)

Shanghai - Composite: UP 0.7 percent at 3,252.98 (close)

Euro/dollar: UP at $1.0926 from $1.0830 on Wednesday

Pound/dollar: UP at $1.2760 from $1.2664

Dollar/yen: UP at 140.53 yen from 140.09 yen

Euro/pound: UP at 85.65 pence from 85.52 pence

Brent North Sea crude: UP 2.2 percent at $74.84 per barrel

West Texas Intermediate: UP 2.4 percent at $69.88 per barrel

burs-rl/cw

M.Furrer--BTB