ECB Raises Rates Again Amid Iran War-Driven Inflation Concerns

The European Central Bank (ECB) raised interest rates for the second time this year on Thursday, aiming to curb inflation driven by higher energy costs from the Iran war. The move was widely expected and comes as investors worry about a sustained pickup in inflation.

The euro weakened 0.3% to around $1.159 after the decision, while euro zone government bond yields edged up to fresh multi-year highs. The oil price surged by more than 4% to $105.3 a barrel, adding to investor concern about inflation.

Mark Wall, Chief European Economist at Deutsche Bank in London, said: 'The ECB still needs to tread carefully. The economy has been resilient over the last six months, but rapidly rising gas prices mean the negative supply shock is building.'

David Rees, Head of Global Economics at Schroders, added that higher energy prices will keep headline inflation up, but core inflation remains well-behaved so far.