Forex News – Euro zone unemployment and inflation data highlight slow growth

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The latest euro zone inflation and disappointing unemployment figures will add to expectations of possible future European Central Bank interest rate cuts.

The inflation rate remained unchanged at 2.5 percent after falling to that level in July, as slowing economic growth and retreating energy costs eased price pressures across the 17-country euro region.

Meanwhile the unemployment rate in July rose to 10 percent higher than the expected 9.9 percent which was the previous month’s rate. The data may also strengthen the case for a more cautious monetary policy stance by the ECB, fuelling expectations that there will be no more rate hikes until mid- 2012.

The number of unemployed in the euro zone grew by 61,000 in July, rising for a third straight month to give evidence that the labour market has been weakening in reaction to the slowdown in the economy.

European Central Bank President Jean-Claude Trichet has already admitted that the economic recovery in the region might be weaker than expected.

The ECB is scheduled to meet next Thursday for its September policy meeting and markets are already pricing in that the policy makers are likely to recognize that the downside risks to growth have increased while the upside risks to inflation have diminished.