Inflation poses no risk to ECB purchase program as of now

Financial Markets has been playing Taper drum since end April as German 10 year bund yield reached 0.75% from 0.5% in just matter of weeks.

• Two senior ECB officials poured cold water on such speculation, suggesting that European Central bank (ECB) stands ready to increase asset purchase program and will be frontloading purchases suggesting ECB even if does not increase the purchase remains fully committed to current program which is intended to continue till September 2016. They welcomed the move in the bond market as correction, however extreme volatility remains concern.

Inflation expectation have surely rebounded since January across world, however central bankers tend to rely more on survey based expectations and hard data when it comes to inflation and hard data is suggesting there is nothing to worry as of now.

• Hard evidence suggested that inflation remained subdued in April across Euro zone. Inflation rose by 0.2% m/m with no growth from a year ago. Core consumer price remained flat growing at 0.6% on yearly basis.

Weak inflation would keep downward pressure on Euro, however EUR/USD might still move up if Dollar leg underperforms due to lagging economic activity in United States.

Euro is currently trading at 1.121 against dollar.