LONDON, Oct 31 (Reuters) - German Bund futures retreated from two-month highs on Thursday after the U.S. Federal Reserve curbed expectations of steady monetary stimulus into next year.
The Fed kept its $85 billion-a-month asset purchase plan intact on Wednesday, acknowledging the impact that a recent standoff over the U.S. budget would have on the economy in the fourth quarter and the fact that a recovery in the housing market had slowed.
But the central bank did not sound as alarmed about the U.S. recovery as many had expected, removing a reference to tighter financial conditions from its statement.
Bund futures were 30 ticks lower at 141.55, having hit a two-month high of 141.90 on Wednesday.
"With the Fed failing to live up to very dovish expectations, bullish momentum should have run its course - we stick to tactical shorts in the Bund future," Commerzbank rate strategist Benjamin Schroeder said in a note.
Market participants will closely watch euro zone inflation data for October later in the day after an unexpected slowdown in German inflation on Wednesday.
Slower inflation would increase pressure on the European Central Bank to ease monetary policy further.
"The Fed's statement leaves the door open for a further move higher in yields in the near term, though more weak inflation numbers from the euro zone today should limit the upside potential for German yields," said Jan von Gerich, chief fixed income analyst at Nordea in Helsinki.
Euro zone inflation was 1.1 percent in September, way below the ECB's close-to-2-percent target.