Market gauge of long-term euro area inflation expectations continue to hit fresh record lows

Author: Justin Low | Category: News

The ECB's worst fear is starting to be realised

EUR 5Y inflation swap forward
The key gauge of long-term Eurozone inflation expectations has fallen to a fresh record low of just 1.19% and has been on a downwards spiral since breaking the 2016 low since the ECB meeting and Draghi last week.

On Monday, Bloomberg reported that the ECB is beginning to get a little worried about the prospects of inflation expectations deanchoring. Right now, we could be at the tip of where it all breaks down for the ECB.

The peculiar thing about the recent sharp fall in inflation expectations over the past week is how the euro has been resilient. While that may owe to positioning and flows moving out of the dollar, it's hard to see the single currency hang on for too long especially if a further fall risks forcing the ECB to introduce stimulus measures sooner rather than later in order to restore confidence back in markets.

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