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An inflationary spiral seems firmly entrenched in the euro zone. The latest inflation figures released on Friday came in higher than expected, boosting the euro against the dollar but dealing a major blow to European stock markets.
European stock markets fall as inflation worsens
After a strong start to the session, the old continent's main bourses fell sharply after disappointing results on euro zone inflation were published.
The flagship Euro Stoxx 600 index fell 0.03%, wiping out an initial gain of 0.08%. A similar trend was seen in Paris, where the CAC 40 fell 0.08% to 7,972.26 points, a far cry from its intraday high of 7,982.83 points before the alarming data was released.
Yields also fell in the bond market, with Germany's 10-year government bond rising 4.5 basis points to 2.7% and its two-year bond rising 4.1 basis points to 3.121%.
Faced with the threat of prolonged monetary tightening, the single currency is poised to win
Euro zone consumer prices rose 7% year-on-year in April, compared with 6.9% investors had been hoping for, a stronger-than-expected figure and rekindling concerns that the European Central Bank may continue to tighten monetary policy for a long time.
The euro rose 0.1% against the U.S. dollar to trade at $1.0842. Traders now expect the ECB to keep its key interest rate high for an extended period to tame a sharp rise in inflation.
The relentless fight against inflation remains an absolute priority for central banks, even if it means temporarily sacrificing burgeoning economic growth. With inflationary pressures so persistent, investors will have to be patient before expecting an easing of European monetary tightening.
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