Investors are confident of an interest rate cut by the European Central Bank next week and will be looking closely for any clues that it will lower rates again in October.
The ECB started lowering rates from their record high of 4 per cent in June but held off from making a second a cut at its July meeting, citing services inflation above 4 per cent as “a worry”. However, traders in swaps markets have now fully priced in a cut to 3.5 per cent at the bank’s meeting on Thursday.
Since the ECB last met, inflation has fallen sharply to a two-year low of 2.2 per cent in August, with Germany and Spain reporting larger than expected reductions. However, services inflation in the bloc ticked up to 4.2 per cent, although some economists put that down to the effect of the Paris Olympics.