Against the backdrop of rising energy prices and supply chain bottlenecks, Eurozone inflation expectations reached the highest levels in seven years at 2.0509% on Tuesday.

After several months of high inflation readings in the Eurozone, the inflation expectations amongst the old continent’s bond investors have surged past the European Central Bank's (ECB) target of 2%.

However, the ECB policymakers continue to downplay concerns over rising inflation, as the focus this week remains on the central bank’s plan on the withdrawal of the pandemic support measures.  

Analysts at ING Bank note, “rising inflation swaps will be a key topic at Thursday's ECB meeting. The persistent inflation scare is seeing expectations tilt towards tighter policies, and any pushback by the ECB may remain confined to the very front-end pricing."

Across the Atlantic, “US inflation expectations, as measured by the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data jumped to the highest levels last seen during August 2006 by the end of Monday’s North American trading,” FXStreet Analyst Anil Panchal explains.

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