LONDON, Jan 16 (Reuters) - Borrowing costs across the euro area extended their falls on Tuesday, after the ECB’s Francois Villeroy de Galhau said the bank must keep an eye on the euro exchange rate because of the downward pressure it puts on inflation.
The euro fell to a session low of $1.2195 after Villeroy’s comments and the single currency was last down 0.5 percent at $1.22.
German’s 10-year government bond yield hits the day’s low of 0.48 percent, down 5 basis points on the day, while 30-year Bund yields were set for the biggest 1-day fall since December 1.
Villeroy told German newspaper Boersen Zeitung that the ECB remained confident that euro zone inflation was moving towards its target of close to two percent even though underlying inflation has held steady for three months at 0.9 percent.
Bond yields across the region had already fallen based on an source-based report by Reuters earlier on Tuesday that the ECB is unlikely to ditch a pledge to keep buying bonds at next week’s meeting. (Reporting by Fanny Potkin and Tommy Wilkes; Editing by Dhara Ranasinghe)