Euro zone government bond yields plumbed record lows on Wednesday and the euro fell to its weakest in a year against the dollar on expectations the European Central Bank will act soon to counter low growth and slowing inflation.
The prospect of further stimulus, through an asset-buying program known as quantitative easing, also buoyed stock markets. European shares rose again, building on two days of strong gains, and Wall Street was expected to open higher.
Fuelling the speculation of ECB easing, Italian Economy Minister Pier Carlo Padoan said Italy must lower its growth forecast for this year, and German consumer sentiment fell for the first time since early last year.
“When the (euro zone’s) largest economy is falling behind, this is very much increasing the chances of the ECB heading for further monetary measures, above all QE,” said DZ Bank strategist Daniel Lenz.
The yield on the benchmark German Bund DE10YT=TWEB fell some 4 basis points to a record low of 0.909 percent. Bund futures FGBLc1 climbed to a record high of 151.32. Yields fell across the euro zone, with records set in most higher-yielding debt, including Italy and Spain’s.
Euro zone inflation data due on Friday are likely to show a new low for this cycle of just 0.3 percent and add to the sense of urgency on policy.
ECB President Mario Draghi’s call last week for more action in both monetary and fiscal policy has markets betting further steps may come as soon as the central bank’s next policy meeting, on Sept. 4.
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