European Stocks Rise Ahead of ECB Rate Decision as Investors Buy the Dip

European stocks moved higher on Thursday as investors returned to the market to buy undervalued shares following several weeks of pressure caused by persistent higher-for-longer interest rate expectations. Market participants remained focused on the European Central Bank (ECB) and its highly anticipated monetary policy announcement.

The pan-European STOXX 600 index gained 0.6% during morning trading after closing at its lowest level in more than three weeks in the previous session. London's FTSE 100 climbed 0.7%, recovering from its weakest level since late March, while Italy's FTSE MIB surged 1.1%. Germany's DAX remained largely unchanged, continuing to trade near recent multi-week lows.

Analysts noted that investor confidence remains resilient despite recent market weakness. The ongoing “buy-the-dip” trend has helped prevent a deeper correction, with traders taking advantage of lower stock valuations whenever markets pull back.

The ECB is widely expected to increase its key deposit rate by 25 basis points to 2.25%. If implemented, the move would mark the central bank’s first interest rate hike since 2023, highlighting its commitment to controlling inflation despite slowing economic growth across the eurozone.

Higher interest rates, combined with rising energy prices, present significant challenges for businesses and consumers. Increased borrowing costs may reduce corporate investment and consumer spending, while elevated fuel and utility expenses could pressure profit margins, particularly in energy-intensive industries.

Investors have also reduced expectations for ECB rate cuts later this year, removing a major source of support for European equity markets. Market attention will be closely focused on ECB President Christine Lagarde’s comments regarding the likelihood of further policy tightening in the coming months.

Geopolitical concerns also weighed on sentiment after renewed military exchanges between the United States and Iran. The escalating tensions have increased fears of disruptions to Middle East energy supplies, potentially adding further inflationary pressure to the global economy.

Among notable stocks, Hugo Boss surged more than 8% after Frasers Group launched a €2 billion takeover bid for the German fashion company. Wizz Air gained approximately 6% after reporting annual profits that exceeded analyst expectations. Meanwhile, technology stocks underperformed, with SAP and Capgemini posting notable declines after Oracle’s aggressive spending plans prompted investors to reassess sector valuations.

Overall, European stock markets showed resilience as investors balanced expectations for tighter ECB monetary policy, ongoing geopolitical risks, and corporate earnings developments.