Eurozone: Key gauge of long-term inflation expectations hits 21-month tops above 1.40%
|In a sign that the reflation trade is alive and kicking, a key gauge of long-term Eurozone inflation expectations rose above 1.40% for the first time since May 2019.
The 5-year, 5 years forward inflation swap rate, closely tracked by the European Central Bank (ECB), is at 1.405%, higher on the day by nearly 2bps.
The main catalyst behind Friday’s upsurge is the Fed Chair Powell-led rally in the US Treasury yields, which has once again lifted the global returns on the market.
It’s an encouraging sign for the ECB, given that the central bank has struggled to boost inflation towards its near 2% target over the years.
Heading into the ECB monetary policy decision next week, markets are widely expecting the central bank to boost its PEPP purchases amid the ongoing surge in yields.
EUR/USD nears 1.1900
EUR/USD is heading towards 1.1900, pressured by rising yields and broad-based US dollar strength.
The spot currently trades at 1.1924, down 0.34% on the day, with the focus now shifting towards US NFP release.
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