LONDON: A key indicator of euro zone inflation expectations rose sharply on Friday, on course for its biggest weekly rise in at least 2-1/2 years, in a sign of markets' faith that the European Central Bank's bond-buying plan would reflate the economy.
The five-year, five-year forward breakeven, which shows where investors expect 2025 price growth forecasts to be in 2020, rose to 1.798 percent from 1.765 percent on Thursday.
The ECB, which begins buying bonds under the scheme on Monday, on Thursday forecast euro zone inflation would rise from 0 percent this year to 1.8 percent in 2017, close to its target of just below 2 percent.
"We interpret it as a sign of the credibility of (ECB chief) Draghi's measures," said Guilhem Savry, investment manager in Unigestion's Cross Asset Solutions team
The rise in inflation expectations comes after positive euro zone economic data, a rebound in oil prices and a weakening euro. The five-year, five-year forward, the ECB's preferred measure of the market's long-term inflation expectations, has climbed around 0.15 percent this week - the biggest rise since Reuters started tracking the measure in late 2012.
Euro zone inflation swap rates also rose across the board, with two-year rates up 5 bps at 0.59 percent.
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