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Key gauge of euro zone market inflation expectations jumps to highest since Jan 2020

Euro currency bills are pictured at the Croatian National Bank in Zagreb

LONDON (Reuters) – A key market gauge of long-term inflation expectations in the euro area rose on Wednesday to its highest level in almost a year, boosted by rising U.S. inflation expectations.

The five-year, five-year breakeven forward, rose to just above 1.29%, its highest level since January 2020 — before the spread of the coronavirus wrecked havoc on the economy and depressed inflation.

But a growing perception that a win for Democrats in a Senate runoff race in Georgia may signal more fiscal spending under President-elect Joe Biden in the months ahead has boosted U.S. inflation expectations, spilling over into Europe.

The five-year, five-year rate – closely tracked by the European Central Bank – is a positive sign for the central bank, which has struggled to boost inflation towards its near 2% target.

(Reporting by Dhara Ranasinghe; editing by Thyagaraju Adinarayan)

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