Euro zone yields nudge lower after ECB holds steady, stocks inch up

The euro and euro zone ​government bond yields inched lower, and European ​stocks edged higher on Thursday, after ‌the European ​Central Bank held interest rates steady, as expected.

The central bank warned inflation risks were on the rise from surging energy costs, ‌which may solidify market bets for a December rate hike. It also warned higher costs would also weigh on economic growth. Market focus will now shift to a press conference by leaders of ‌the central bank due at 1345 GMT, for clues about the outlook for interest ‌rates.

President Christine Lagarde herself will also be in focus. Earlier in the day, she announced that she will step down on February 7, ahead of schedule. "(Lagarde's) successor is going to step into an environment where rate hikes ⁠are ​expected throughout next year, ⁠although they (the ECB) note that energy prices pose an upside risk to inflation as well as a downside risk ⁠to growth," said Neil Birrell, CIO, Premier Miton,

"That’s a tough backdrop for the new head of ​the ECB to walk into." The euro briefly dipped on the announcement, trading down as much ⁠as 0.4% at $1.1105, extending an earlier fall that took it to its lowest since May last year. It ⁠also ​dropped to its lowest in 18 months on the pound just before the rate decision, and was last at 83.48 pence.

Germany's 10-year bond yield, which serves as the euro zone ⁠benchmark, was last down 6 basis points at 3.32%, while the yield on the rate-sensitive ⁠Schatz was down 7 bps ⁠at 3.03%, each a couple of bps lower than before the decision. European stocks rose slightly after the decision. The broad STOXX 600 was ‌up 1%.