LONDON (Reuters) – A key market gauge of euro zone inflation expectations, the five-year, five-year forward inflation swap, on Thursday fell to within sight of record lows hit in 2016 ahead of a European Central Bank meeting.
The five-year, five-year forward fell to 1.2739%, its lowest point since 2016 when it fell to a record low around 1.25%.
The sharp decline in inflation expectations in recent weeks is a worrying sign for the ECB, which has failed to meet its near 2% inflation target in recent years.
Money market pricing showed that investors now price in almost a 70% chance of a 10 basis point cut in ECB rates by the end of the year.
(Reporting by Virginia Furness; Editing by Dhara Ranasinghe)