European Stocks Plummet Amid Rising Inflation Concerns

European stocks fell to two-month lows on Thursday as investors anticipated further interest rate hikes after the European Central Bank (ECB) increased borrowing costs by 25 basis points to 2.5%.

The pan-European STOXX Europe 600 index dropped 0.7% to 635.97 points, its lowest level since July 8. This decline was largely driven by concerns over rising energy prices due to the Iran war and the subsequent impact on inflation expectations.

ECB President Christine Lagarde emphasized that 'risks to the inflation outlook are to the upside' and that price pressures could remain above target for an extended period, though she stressed that no future rate decisions had been pre-committed.

The market's focus is now shifting towards the upcoming U.S. consumer price report due on Friday, which will play a crucial role in determining whether the Federal Reserve hikes interest rates next week.