The European Central Bank (ECB) raised its benchmark interest rate to 2.25% on Thursday. The 0.25 percentage point increase marks the first major central bank tightening since the Iran conflict began. Policymakers aim to curb inflation driven by surging oil prices.
The decision follows a period of stubbornly high European inflation figures. The ECB move sets a hawkish tone for U.S. Federal Reserve and Bank of England meetings next week. Global policymakers face pressure to address inflation despite risks of an economic slowdown.
The euro strengthened against the dollar immediately following the announcement. Investors are monitoring financial stocks as higher rates can expand net interest margins for banks. Higher rates also increase the risk of slower loan growth and higher default rates.