Long-term Eurozone inflation expectations falls to a one-year low
The 5y-5y inflation swap is one of the key gauges used by markets on long-term Eurozone inflation expectations and currently it has fallen to 1.6575%, the lowest it has been in almost a year. That's adding more woes for the euro and this in turn translates to confidence surrounding the ECB's ability to normalise policy in 2019.
With Italy's debt/budget already adding an element of outside risk that threatens to derail the ECB's plans, waning inflation and flagging economic growth are certainly problems the central bank would prefer not to have as we look to close out the year.
Keep an eye on this space as we move into 2019. Should inflation expectations continue to dwindle, expect markets to rethink about possible rate hikes by the ECB by the end of next year.
