European Stocks Rise on Fed Rate Hike, Middle East Diplomatic Hopes

European stock markets advanced on Thursday, as investors welcomed the U.S. Federal Reserve's first interest rate increase since mid-2023 and grew optimistic about potential diplomatic progress in the Middle East.

Markets Applaud Fed's Resolve

The pan-European STOXX 600 index gained 0.4%, with major regional bourses posting similar gains, according to Investing.com data. Germany’s DAX, France’s CAC 40, and the UK’s FTSE 100 all rose by approximately 0.4%.

The gains followed a decisive rate hike from the U.S. central bank. Market participants largely interpreted the move as a positive signal of the Fed's commitment to controlling inflation, rather than a direct headwind from higher borrowing costs. According to the source, investors saw the action as a show of institutional independence from political pressure.

"Markets absorbed the hike relatively calmly because it was almost fully priced, but the reaction turned more defensive," said Daniela Hathron, senior market analyst at Capital.com, in a comment to Investing.com. "Investors were responding primarily to the future policy path rather than yesterday’s hike itself."

Geopolitical Optimism Lends Support

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Investor sentiment was further bolstered by developments in the Middle East. President Donald Trump reportedly voiced optimism that an end to the seven-month conflict with Iran could be near, stating that Tehran is eager for a peace agreement.

Adding to the diplomatic chatter, Axios reported that President Trump is expected to hold bilateral meetings with Gulf leaders during the upcoming UN General Assembly. Signs of de-escalation in geopolitical hotspots typically reduce risk premiums for equities.

Focus Shifts to BoE, Eurozone Inflation

With the Fed's decision absorbed, investors are now turning their attention to upcoming European economic data and monetary policy. The Bank of England (BoE) is set to announce its own rate decision, with traders closely watching for any signals of a future hike after recent UK consumer price inflation came in at 3.1%.

Market participants are also awaiting the final reading of Eurozone CPI data. The report will provide further insight into underlying inflation pressures following the European Central Bank's recent rate increase to 2.5%. "[BoE Governor] Bailey’s assessment of second-round energy effects may matter considerably more than today’s headline decision," Hathron noted.