LONDON (Reuters) -European stocks, government bonds and the euro held steady on Thursday after the European Central Bank kept rates unchanged at 2%, as expected, as it enjoys a rare period of low inflation and stable growth.
The ECB kept rates unchanged for a third straight meeting and said its assessment of the inflation outlook was broadly unchanged.
Markets maintained its view that the ECB would keep their deposit rate unchanged through the end of the year. Turning to next year, investors were pricing in about 8 bps of easing by year-end 2026, implying about a 32% chance of another quarter-point cut.
“Where’s the smoking gun for a rate cut? Despite the U.S. tariffs, despite all the various sources of uncertainty, the European economy continues to eke out some growth,” Deutsche Bank chief European economist.
“Economic ‘resilience’ is keeping the ECB doves in check, and the policy pause on the rails.”
The euro was last down 0.2% against the dollar at $1.1572, close to where it was trading before the decision. The dollar had risen against most major currencies on Thursday after Federal Reserve Chair Jerome Powell introduced some uncertainty over a December rate cut, given the absence of economic data.
Germany’s 10-year bond yield, the benchmark for the euro zone, was last up 3.5 basis points at 2.655%.
The policy-sensitive two-year yield was up 3 bps at 2.007%. Bond yields move inversely with prices.
The pan-European STOXX 600 index was down 0.6%. An index of euro zone banks was lower by 0.8%.
Investors and economists alike were waiting to hear more from ECB President Christine Lagarde at the post-meeting press conference.
At the last meeting, the ECB chief said central bank policy was “in a good place”, in that policymakers can tolerate small, temporary deviations from their 2% inflation target.
Data points since then show the euro zone has held up reasonably well, with business activity gathering momentum over October and inflation pressures showing no signs of taking off.
(Reporting by Samuel Indyk; Editing by Amanda Cooper and Dhara Ranasinghe)
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