European stock markets experienced a significant surge following the European Central Bank's (ECB) decision to cut interest rates by 25 basis points. This move, announced on Thursday, brings the deposit facility rate down to 2%, a notable decrease from the mid-2023 high of 4%. The ECB's decision was influenced by a stronger euro and declining energy costs, leading to a positive market response. Traders had anticipated this quarter-point cut, with LSEG data indicating a nearly 99% chance of the reduction ahead of the announcement. The rate cut is expected to stimulate economic activity by making borrowing more affordable for businesses and consumers, potentially leading to increased investment and spending across the eurozone.
In addition to the rate cut, the ECB revised its inflation expectations downward, reflecting improved economic conditions. The combination of a stronger euro and lower energy costs has contributed to this optimistic outlook. The decision has been well-received by investors, with European stock indices showing notable gains. The move underscores the ECB's commitment to supporting economic growth and stability in the region. As the eurozone continues to recover from previous economic challenges, this proactive approach by the ECB is seen as a positive step toward sustained economic health and prosperity.