Eurozone Inflation Challenges ECB's Rate Cut Plans

Recent data shows rising inflation in the eurozone, complicating the European Central Bank's ability to cut interest rates as initially planned. German bond yields have increased, highlighting market reactions to resilient economic activity in the U.S. and persistent inflation in Europe.

For the fifth consecutive day, German government bond yields have risen, reaching a two-month high. This follows eurozone and U.S. data suggesting limited room for central banks to cut interest rates. Eurozone inflation increased to 2.4% last month, driven by higher energy costs and stubborn services inflation.

The uptick in inflation was anticipated by economists and mirrored consumer inflation expectations in a separate survey, emphasizing economic resilience in the U.S. Data on U.S. employment spurred a sell-off in Treasuries, which pushed yields higher.

German 10-year bond yields, setting the eurozone benchmark, climbed 2.5 basis points to 2.474%, marking a fifth day of increases. Despite this inflation surge, traders still predict a rate cut at the ECB's meeting at the end of January, though it complicates the ECB's growth support efforts.

(With inputs from agencies.)