ECB holds rates, Lagarde to step down: euro falls to lowest since May

what happened

The European Central Bank left interest rates unchanged, a move that had been widely expected. The bank said inflation risks are rising because of higher energy costs, which could firm up market bets on a rate hike in December, Reuters reported.

Earlier on Thursday, ECB President Christine Lagarde resigned, ending months of speculation about her future. Europe is entering a period of rising economic volatility and sharp political divisions, especially in France, Lagarde's home country.

The euro fell to its lowest level since last May, sliding about 0.2% to 0.3% against the dollar to around $1.11. Two-year government bond yields dropped noticeably, while the STOXX 600 index rose 0.95%.

why it matters

For markets, the leadership change at the ECB and pressure on French public debt matter more than the rate decision itself. Analysts disagree on the signal: some see a softer tone from the bank, while others expect further rate hikes next year.

market impact

Euro and euro-zone bonds: the ECB's softer tone weighs on the euro and supports bond prices

• ▼EUR/USD pressure down — a softer ECB tone and uncertainty over new leadership
• ▲Euro-zone 2-year bonds pressure up — lower rate expectations support bond prices
• ▲STOXX 600 pressure up — stocks rallied on the ECB decision

tags

instruments