July 25, 2019 / 1:27 PM / 6 months ago

Euro zone inflation gauge ticks up on ECB, euro reverses earlier fall

(Reuters) - Money markets’ gauge of long-term inflation expectations in the euro zone ticked higher on Thursday after the ECB flagged a sweeping stimulus package, though the euro, stocks and bonds reversed earlier knee-jerk gains.

The five-year/five-year forward inflation swap EUIL5YF5Y=R traded as high as 1.3582, the highest since May.

But the euro as well as bond yields reversed their early fall as European Central Bank governor Mario Draghi sounded more upbeat on the economy than expected. That pushed the single currency up to $1.1151 after falling earlier to $1.110 EUR=EBS, up 0.1% on the day.

It also firmed 0.3% versus the Swiss franc EURCHF=D3.

German 10-year yields also inched off record lows to -0.354%, and were flat on the day while Italian 10-year yields reversed earlier sharp falls to rise as much as five basis points to 1.55%, up from a low of 1.38% IT10YT=RR.

“Draghi wasn’t sufficiently gloomy enough to warrant more easing than what markets are expecting in September. On the contrary, he is pointing at more pockets of strength in the economy such as labour and services and that is causing this rebound in euro and bond yields,” said Esther Maria Reichelt, a strategist at Commezbank in Frankfurt.

Markets slightly trimmed their bets on a 10 bps cut in September to 84% from 94% immediately after the ECB policy statement. ECBWATCH

Germany's blue-chip stocks index fell into negative territory .GDAXI and was down 0.2% at 1300 GMT.

Reporting by the London markets team; writing by Sujata Rao

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