The European Central Bank cut interest rates on Thursday, the sixth consecutive cut amid the region's rapidly changing economic situation.
The bank's key rates increased quarterly points to 2.5% due to relatively low regional inflation and weak economic growth.
However, as policymakers face the shift in the European earthquake, the future path for interest rates is becoming increasingly uncertain. Over the past few days, European leaders have vowed to increase military spending by hundreds of millions of euros, as they are not sure of an alliance with the US.
Plans involving borrowings in Germany, in particular, have led to yields that European government bonds jump higher, particularly on long-term debt and rising borrowing costs. The outlook for more spending and lower interest rates helped DAX, the German benchmark index, boost stocks at record highs. The euro has also opposed its strongest level against the US dollar in four months, further easing inflationary pressures.
This shaped a financial photograph of Europe as the central bank worked on the prospect of President Trump impose tariffs on the region.
There was a division among members of the European Central Bank's governing council about how low interest rates were. Overall, policymakers show that policies aim for a neutral rate that does not limit or boost the economy. But they said they knew they reached it when it became it.
As yields rise, traders show that there is potentially one more rate reduction in April or June.
The eurozone economy has been slowing since the second half of last year, with policymakers significantly cutting interest rates, a 1.5 percentage points cut from last summer, to support businesses and households with more access to loans. The extent of economic weakness surprised policymakers because consumers are slower to spend more money in response to lower inflation. However, the central bank is still forecasting forecasts that the economy will recover later this year.
Eurozone inflation slowed to 2.4% in February, data released earlier this week showed. Inflation in the services sector, which is frustrating and stubborn for policymakers, also slowed to 3.7% from 3.9% in January.
