© Reuters. FILE PHOTO: Packs of 20-euro notes are seen at the Bank of Portugal fortified complex in Carregado, Alenquer, Portugal, May 17, 2022. REUTERS/Pedro Nunes/File Photo
LONDON (Reuters) – The euro dropped and European government bond yields slid after the European Central Bank raised rates by 75 basis points, in line with market expectations.
Bank stocks were also in focus, rising after the central bank changed the terms of one of its pandemic-era programme of loans to lenders.
The euro dropped below parity against the dollar and was last down 0.8% at $0.9997 compared to $1.0032 before the decision.
The yield on both German and Italian government bonds dropped, reflecting the rise in their prices. The benchmark German 10-year Bund () was last down 6 basis points on the day at 2.053% compared with 2.195% before the ECB announcement.
“The ECB is living on the edge of a dovish pivot,” said Viraj Patel, global macro strategist at Vanda (NASDAQ:) Research.
“It’s clear that this is a central bank that wants to front-load rate hikes to control inflation. But they are also wary that they are not in control of a lot of external growth and market factors that can act as a circuit-breaker to the hiking cycle.
European bank stocks were up 0.64% having earlier traded lower, after the ECB changed the terms of its Targeted Longer-term Refinancing Operations (TLTRO)to remove a subsidy on its multi-year loans to banks to encourage them to repay them early, a move designed to mop up excess cash from the system.
The pan-European index pared losses to trade 0.3% lower having been down 0.7% earlier.
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