The euro fell sharply on Thursday after the European Central Bank’s latest policy stance did not match market expectations for the pace of stimulus withdrawal.

The ECB chooses to take keep interest rates unchanged as expected. But in a subsequent press conference, President Christine Lagarde noted that “downside risks to the growth outlook have increased substantially as a result of the war in Ukraine”. Inflation will remain high in the coming months, mainly because of higher energy costs, she added.

Carsten Brzeski, head of macro at ING Research, attributed the currency devaluation to the market’s “going ahead” in recent weeks, with eight rate hikes expected by the end of 2023.

“However, Lagarde’s comments today confirm a fairly gradual process of normalization,” he said.

The central bank said economic data released since its last meeting “reinforced its expectations” that its asset purchase programme (APP) should end in the third quarter of this year.

Still, Frederik Ducrozet, a strategist at Pictet Wealth Management, said the currency’s decline was due to no “strong hint or firm commitment” from Lagarde that the APP would end in June. “It was a reaction to market positioning ahead of the meeting,” he said.

Inflation in the euro zone has soared over the past year, with prices rising by 7.5% last month. Both the Federal Reserve and the Bank of England have started raising interest rates to try to stem the sharp rise in prices, but the European Central Bank said it must first stop buying bonds before raising borrowing costs.

ECB policymakers also need to balance the impact of the Ukraine war, which is expected to take a huge toll on the European economy.

“Given slowing growth and rising inflation, the supply shock implied by the war means the Governing Council faces tough trade-offs,” analysts at Goldman Sachs noted. The investment bank expects the ECB to raise interest rates in September, but said that if inflationary pressures pick up, 7 A monthly rate hike is not impossible.

Euro zone government bonds weakened after the ECB decision. German 10-year bond yields rose 0.04 percentage points to 0.82%, while Italian bond yields also rose 0.09 percentage points to 2.46%. Yields rise when prices fall.

The regional Stoxx Europe 600 gained 0.7%, Germany’s Dax gained 0.6% and France’s Cac gained 0.7%. London’s FTSE 100 rose 0.5%.

In the U.S., Goldman Sachs and Citigroup saw their first-quarter profits fall by more than 40% year over year. JPMorgan said Wednesday that its net income fell 42% in the same period.

Meanwhile, jobless claims rose to a seasonally adjusted 185,000 for the week ended April 9, slightly above expectations of economists polled by Reuters.

The S&P 500, Wall Street’s benchmark, was down 0.8% in afternoon trade after gaining 1.1% in the previous session, while the tech-heavy Nasdaq Composite lost 1.6%.

U.S. government bond prices fell suddenly. The 10-year government bond yield rose 0.13 percentage points to 2.82%, and the two-year government bond yield also rose 0.11 percentage point to 2.45%.

Oil prices rose on Thursday, with international benchmark Brent crude rising 1.6% to $110.46 a barrel.

In Asia, Hong Kong’s Hang Seng rose 0.7% and China’s CSI 300 gained 1.3%. Japan’s Topix rose 1 percent, while South Korea’s Kospi was flat.