Nomura Securities economist George Buckley said, "The significant reduction in inflationary pressure in the Eurozone has led the market to expect the possibility of the European Central Bank cutting interest rates in October to be close to 80%.
INSEE reported that the monthly inflation rate in France in September was -1.2%, lower than the expected -0.8% and also lower than the 0.6% increase in August. The annual rate is much lower than the European Central Bank's target of 1.5%, which is 2.0%.
INE reported that Spain's monthly inflation rate in September was -0.6%, far below the expected -0.1% and 0% in August, and the annual rate has now dropped from 2.3% to 1.5%.
Franziska Palmas, Senior European Economist at Capital, stated, "The inflation data from France and Spain in September almost confirms that the overall inflation rate for the entire eurozone, released this week, will significantly fall below the 2% target.
Given the decline in inflation and indications that Germany urgently needs stimulus measures, how can the European Central Bank justify a slow rate cut?
Ulf Andersson, an economist at the German Central Bank, said, "Some European economies, especially Germany, urgently need more supportive monetary policies
Members of the European Central Bank's Governing Council insist that caution is needed in cutting interest rates, but George Buckley, an economist at Nomura Securities, said that this week will be filled with new speeches that will be "crucial in determining how realistic the European Central Bank considers a faster pace of rate cuts.
Palmas said, "Currently, we believe that overall, the European Central Bank is most likely to keep interest rates unchanged in October. However, due to weak business surveys, the possibility of a rate cut has increased
Regarding inflation data from France and Spain, Nick Andrews, Senior Foreign Exchange Strategist at HSBC, stated that the slowdown in the Eurozone Service Consumer Price Index should prompt the European Central Bank to accelerate its interest rate cuts.
He added, "Since June, the euro has risen 4% against the US dollar and tested the resistance level of 1.12. However, we prefer to believe that the upward trend will fade and expect the euro against the US dollar to soon return to a downward trend. Last week's data supports our belief