NEW YORK: The euro hit a 15-year peak against the yen and a fresh four-week high against the dollar on Thursday after the European Central Bank raised interest rates and signalled further tightening to bring euro zone inflation to its medium-term target of 2%.

The ECB lifted rates by 25 basis points, as expected, its eighth successive increase, to 3.5%, the highest in 22 years.

Its staff have also increased their forecasts for inflation excluding energy and food, especially for this year and next, owing to past upward surprises. The inflation projection for this year was raised to 5.1% from 4.6%.

“It’s a hawkish surprise as the inflation forecasts were revised higher by more-than-expected, for core in particular. That’s an indication of further tightening to come in the ECB’s outlook,” said Sebastian Vismara, global macro economist and strategist, at BNY Mellon investment management in London.

“Euro is appreciating and short rates have moved higher so there’s a bit more hawkishness in the front end of the curve. The market is interpreting this as hawkish, not necessarily the hike itself, but what it’s communicating in terms of the outlook,” he added.

In mid-morning US trading, the euro was last up 0.5% at $1.0894 after earlier touching a four-week high of $1.0881. Against the yen, the euro rose 0.8% to 152.97 , hitting 153.39 yen, the highest since September 2008, following the ECB decision.

The ECB move came a day after the Federal Reserve left interest rates unchanged but signalled further rate hikes to come this year The Fed’s policy decision snapped a string of 10 consecutive rate hikes, but the projections, or dot plot, showed policymakers expect two more increases by the end of 2023. Chair Jerome Powell said rate cuts in 2023 would not be appropriate.