The euro EUR=EBS dipped to trade 0.2% lower at $1.161. Europe's continent-wide STOXX 600 equity index .STOXX extended a fall and was last down 0.6%.
German, French and Italian debt under pressure
Germany's 10-year bond yield DE10YT=RR, the benchmark for the bloc, rose to its highest level since 2011 at 3.482%. Yields rise as prices fall and vice versa.
Global bond yields - proxies for government borrowing costs - have risen to multi-year highs in recent weeks as rising energy prices have layered concerns about inflation on top of worries that governments are not doing enough to reduce high levels of public debt.
Oil prices were last up more than 4% at just over $105 a barrel LCOc1, adding to investor concern about a more sustained pickup in inflation.
The ECB decision and statement exacerbated pressure on debt markets as traders raised their bets on further hikes, pricing in a further 60 bps of rate increases by the April 2027 meeting, up from around 51 bps before the announcement.
"More important than the move itself is that the ECB has used this meeting to acknowledge a stronger economy and a more persistent inflation outlook than it expected just a few months ago," said Aberdeen economist Felix Feather.
"Today's decision signals a Governing Council that is becoming less confident that 2.5% is necessarily the end point of this cycle."
French and Italian bonds came under pressure, with France's 30-year bond yield FR30YT=RR rising to its highest since late 2003 above 5.1%.
The gap between French and German 10-year bond yields - a measure of the risk premium attached to French debt - rose to its highest since 2012 at more than 90 bps DE10FR10=RR.
Euro zone yields hit multi-year highs after ECB hike
Euro zone government bond yields hit new multi-year highs on Thursday as traders raised their bets on further rate increases after the European Central Bank hiked borrowing costs and said the risks remained skewed towards higher inflation.
The ECB lifted its key rate to 2.5%, from 2.25%, as it seeks to ensure a jump in energy prices stemming from the U.S.-Iran war does not spread through the euro zone economy.
The central bank said in a statement that "inflation is set to remain well above target for an extended period", adding that price growth is expected to run at 3% this year and 2.5% next, up from a 2027 forecast of 2.3% in June.
TLT•
