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Bank stocks were also in focus, rising after the central bank changed the terms of one of its pandemic-era programme of loans to lenders.
The euro dropped below parity against the dollar and was last down 0.8% at $0.9997 compared to $1.0032 before the decision.
The yield on both German and Italian government bonds dropped, reflecting the rise in their prices. The benchmark German 10-year Bund (DE10YT=RR) was last down 6 basis points on the day at 2.053% compared with 2.195% before the ECB announcement.
“The ECB is living on the edge of a dovish pivot,” said Viraj Patel, global macro strategist at Vanda (NASDAQ:VNDA) Research.
“It’s clear that this is a central bank that wants to front-load rate hikes to control inflation. But they are also wary that they are not in control of a lot of external growth and market factors that can act as a circuit-breaker to the hiking cycle.
European bank stocks were up 0.64% having earlier traded lower, after the ECB changed the terms of its Targeted Longer-term Refinancing Operations (TLTRO)to remove a subsidy on its multi-year loans to banks to encourage them to repay them early, a move designed to mop up excess cash from the system.
The pan-European STOXX 600 index pared losses to trade 0.3% lower having been down 0.7% earlier.
