As cited by Reuters, five-year five-year forward Eurozone inflation expectations (i.e. inflation expectations over the five-year period beginning five years from now) rose above 2.0% for the first time since late October on Tuesday. As noted by Reuters, five-year five-year forward inflation expectations are seen as a key gauge of the market's long-term Eurozone inflation expectations, as well as a gauge of the credibility of ECB policy to hit its 2.0% target in the long-run.
The return to 2.0% will thus be looked on positively by ECB members as a show of market confidence in the appropriateness of their current policy stance. The gauge has rallied from as low as 1.85% in December as Omicron-related pessimism has been priced out by markets.
There has not been any euro reaction to the latest developments in inflation expectations given that inflation expectations have also been rising elsewhere.
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