European stock markets traded lower on Thursday after the European Central Bank announced another interest rate cut that had been widely expected.

Policymakers at the institution announced a quarter-point cut to the euro zone’s key interest rate, bringing it down to 2.5%.

The regional Stoxx 600 index was 0.9% lower by 1:23 p.m. in London, shortly after the announcement.

Germany’s DAX climbed down from earlier highs to trade 0.1% higher, after notching its best session since November 2022 on Wednesday and a record high earlier on Thursday.

German performance has been powered by investors betting on stronger growth prospects and significantly higher spending on infrastructure and defense in Europe’s biggest economy, after politicians struck a landmark deal to try to reform existing debt restriction rules.

Automakers have also received a boost following sharp declines Monday, amid suggestions U.S. tariffs on Canada and Mexico may be eased. The Stoxx autos index was up 1.3% after U.S. President Donald Trump on Wednesday announced a one-month tariff exemption for automakers.

Shares of Jeep and Dodge-maker Stellantis, one of the companies set to be most impacted by the duties, rose 1.9%.

Shares of Air France-KLM were up more than 21.8% after the airline group beat market expectations for full-year and fourth-quarter operating profit. Germany’s Lufthansa was 8.7% higher on its own annual results, which showed a decline in annual profit but also came in slightly ahead of consensus.

DHL Group, listed as Deutsche Post, popped 10% after announcing a 1 billion euro cost-cutting plan set to lead to a 8,000 head count reduction and an increased share buyback program.

European markets are also looking on Thursday to the European Central Bank, which is widely expected to cut its key interest rate by 25 basis points, to 2.5%, amid an easing in euro zone inflation in recent months.

Regional markets will be keeping an eye on policymakers’ comments on the region’s economic and inflation outlook given the potential for trade tariffs to be imposed on the EU by the Trump administration.

European leaders are meanwhile meeting in Brussels for a special summit on defense as the region tries to maintain its support for Ukraine, find common ground on how to end the war and how to keep the U.S. on side.

Expectations of higher defense spending in across Europe have powered a 34.4% rise in the Stoxx Aerospace and Defense index in the year to date.