Investing.com — Traders have raised their bets that the European Central Bank will roll out another interest rate reduction next month following slower-than-expected inflation readings from France and Spain on Friday.
In France, annual consumer price growth eased to 1.2% from 1.8% in August, below economists’ forecasts of 1.6%. A corresponding figure in Spain also cooled to 1.5% from 2.3%, slower than projections of 1.9%.
Meanwhile, the number of people out of work in Germany — the biggest economy in the eurozone currency bloc overseen by the ECB — climbed by more than anticipated in September, fueling worries that the country has already tipped into a recession.
A separate indicator of eurozone sentiment also decreased by more than expected and price expectations eased.
The implied odds of a quarter-point cut by the ECB at its gathering in October are now at about 78%, jumping from roughly 20% last week, according to media reports.
Benchmark German 10-year government bond yields have dipped as a result, while the euro also dropped.
In a note to clients on Friday, analysts at ABN Amro said the growth outlook for the eurozone is “darkening,” adding pressure on to the ECB to cut interest rates despite signs of recently elevated wage increases. An October rate reduction is their “base case,” they noted.
“The eurozone recovery is in danger of stalling, if it has not already,” the analysts said. “If weak demand continues, businesses may start to shed workers on a bigger scale, raising the risk of a downturn.”
Earlier this month, the ECB slashed borrowing costs for the second time in three months. However, speaking in a press conference following the decision, ECB President Christine Lagarde stressed that the central bank was not “committed” to a particular rate path and will remain data-dependent prior when making future policy moves.
