EUR/USD slides below the round-level support of 1.1100 in Tuesday’s European session. The major currency pair weakens due to further deceleration in the preliminary annual Eurozone headline Harmonized Index of Consumer Prices (HICP) below the European Central Bank’s (ECB) target of 2%, which has boosted market speculation for the ECB cutting interest rates again in October.
The report showed that the annual headline HICP inflation decelerated at a faster-than-expected pace to 1.8% from the estimates of 1.9% and August's reading of 2.2%. The core HICP – which excludes volatile items such as food, energy, alcohol, and tobacco – rose by 2.7%, slower than expectations and the August reading of 2.8%. Monthly headline HICP deflated by 0.1% in September, while the core HICP grew at a similar pace.
The ECB delivered the second interest rate cut of its current policy-easing cycle in September and is expected to cut again in October. The return of the annual HICP below 2% is not the sole reason for an increase in the ECB rate cut bets. The Old Continent is underperforming on various parameters, such as the labor market and overall economic activity. Therefore, more rate cuts are needed for the economic revival.
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