(Updates at 1620 GMT, adds consumer price index figures in paragraph 2 and analyst comment in paragraph 3)
Dec 12 (Reuters) - Euro zone government bond yields were lower on Tuesday after data showed U.S. inflation moderated further in November and after British figures showed a weakening labour market as investors brace for central bank policy announcements.
In the 12 months through November, the U.S. consumer price index increased 3.1% after rising 3.2% in October, in line with the forecast of economists polled by Reuters. The annual increase in consumer prices has slowed from a peak of 9.1% in June 2022.
"Inflation angst is old news," said Madison Faller, global investment strategist at J.P. Morgan Private Bank.
"While the last mile of progress towards 2% may still take some time and see bumps along the way, it seems clear that price pressures are abating."
Germany's 10-year government bond yield, the euro area's benchmark, was down 4.5 basis points (bps) to 2.22%. It hit 2.166% on Thursday, its lowest since April 6, before rising to 2.286% on Friday after U.S. payrolls data slowed the recent bond rally.
Bond prices move inversely with yields.
British wage growth slowed by the most in almost two years, official data showed on Tuesday, driving UK 10-year yields down 12.5 bps to 3.955%.
"In summary, the average weekly earnings data may have been weaker, but past outturns have tended to be revised higher, other indicators of pay growth are still strong," said George Buckley, an economist at Nomura.
Other data showed German wholesale prices fell by 3.6% in November compared to last year, while German investor morale improved in December.
CENTRAL BANK POLICY MOVES
Investors are now braced for two days packed with central bank policy meetings. The Federal Reserve's decision on rates is due late on Wednesday, while the European Central Bank and the Bank of England will announce policy on Thursday.
Analysts forecast rates to be unchanged from all three and a cautious counter-reaction against the recent dovish repricing of policy rates from the ECB.
"The key message we expect to hear from the ECB is one of much greater confidence that the next move in rates, when it comes, is likely to be lower," Investec economist Sandra Horsfield said.
"But we also anticipate some pushback against the scale and timing of rate cuts that are now priced into markets," Horsfield added.
Money markets are pricing 133 basis points of rate cuts from the ECB in 2024, down from around 150 bps on Dec. 6. They were pricing cuts of 80 bps at the end of November.
Money markets also price around a 50% chance of a cut in March 2024 after fully pricing it on Dec. 5.
Investors were also expecting the ECB to take the opportunity to end reinvestments of maturing bonds bought under the Pandemic Emergency Purchase Programme (PEPP).
"We have long expected that the Governing Council would decide in December to bring forward the end of PEPP reinvestment," said Citigroup in a research note.
"We stick to that expectation, although we now expect its implementation to be deferred and gradual, rather than immediate."
ECB president Christine Lagarde deemed PEPP reinvestments the first line of defence against any fundamentally "unwarranted" widening of yield spreads within the euro zone, as the central bank can use them to buy the sovereign bonds of most indebted countries.
Italy's 10-year yield, the benchmark for the euro area periphery, was down 5.5 bps at 4.003%. The spread between Italian and German 10-year yields – a gauge of the risk premium investors ask to hold bonds of the most indebted countries – was at 177 bps after falling to 170 bps in late November. (Reporting by Stefano Rebaudo and Samuel Indyk, editing by David Evans and Aurora Ellis) ;))
