The Federal Reserve last week signalled it may be close to the end of its tightening cycle, having raised its interest rate by a combined 500 basis points since the start of last year, its most aggressive series of hikes since the 1980s. Yet data last week showed that U.S. jobs growth and wages accelerated in April, raising the prospect of more deeply entrenched inflation and further rate hikes. The European Central Bank meanwhile still has further to go to bring inflation back to target, policymakers have said, after it raised interest rates by 25 bps to 3.25% last week. ECB President Christine Lagarde said the central bank still has more ground to cover, while board member Isabel Schnabel said the central bank would continue raising borrowing costs until it saw core inflation decline sustainably. Other members of the ECB's rate-setting governing council also expect additional rate hikes this year, but markets are pricing just under two additional 25-basis point rate increases before rate cuts early next year, according to Refinitiv data.
"Markets are definitely not buying what the ECB is saying," Danske Bank's Jens Peter Sørensen said.
"If inflation falls in the U.S. then inflation will fall in
the euro area, and if the Fed starts cutting rates, the ECB will
follow. It's just a matter of timing," Sørensen added.
Italy's 10-year government bond yield , was last
down 8 bps to 4.193%, keeping the spread between Italian and
German 10-year yields steady at around 190 bps.
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T-Bill yield The race to raise rates Annual change in U.S. Consumer Price Index ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Reporting by Harry Robertson and Samuel Indyk;
Editing by Christina Fincher, William Maclean, Alex Richardson
and Andrea Ricci)
