The European Central Bank went ahead with an interest rate hike, in spite of the bank turmoil. Now all eyes turn to the US for the Federal Reserve's interest rate decision next week.
The European Central Bank (ECB) raised its key interest rate by 50 basis points on Thursday amid turmoil in financial markets and concerns about the Swiss bank Credit Suisse. The key rate is now at 3.5 percent, the highest level since the financial crisis in 2008, and is the sixth interest rate hike in a row.
Extent of Increase
The ECB's move, which is in line with market expectations, underlines the central bank's determination to fight high inflation.
Although ECB President Christine Lagarde hinted at a possible 50 basis point hike last week, recent volatility in financial markets, including the collapse of two US banks, raised uncertainty among some market participants about the extent of the raise.
Financially Sound
According to its statement, the ECB assesses the European banking sector as «resilient» and financially sound, while it continues to monitor current market tensions very closely. It stands ready to respond if needed to ensure price and financial stability in the eurozone, it added.
27 Percent Probability
Now investors are eagerly awaiting the Federal Reserve's interest rate meeting next week. Traders were pricing in at least a 25 basis point rate hike at the start of the week. However, the CME Group's FedWatch tool is indicating a probability of around 27 percent that US interest rates will remain at current levels.
