Heading for a further cut in ECB rates

In the space of a month, the economic environment has changed dramatically in the eurozone, with a sharp deterioration in the PMIs and a faster than expected fall in inflation, with the flash estimate coming in at 1.8% in September. Against this backdrop, expectations of an ECB rate cut in October have strengthened, the probability now being put at 95%. In addition to the rate cut, we will be paying close attention to Christine Lagarde’s speech, particularly as regards further monetary normalisation by the ECB and the key issue of the neutral rate.