Euro zone inflation hits a 3-year low of 2.2%, strengthening the argument for a September rate cut.

• In August, Eurostat's flash figures revealed that the Euro zone's inflation rate fell to a three-year low of 2.2%.
• In August, the core rate, which excludes energy, food, alcohol, and tobacco, decreased to 2.8% from 2.9% in July, in line with a Reuters poll.
• The ECB is expected to lower interest rates by another 25 basis points in September, following its first rate reduction in June, and another 25 basis point cut before the end of the year.

The Euro zone's inflation rate fell to a three-year low of 2.2% in August, according to Eurostat's flash figures, increasing the likelihood of a September rate cut from the European Central Bank.

In July, the decline in the economy was predicted by economists surveyed by Reuters.

In August, the core rate, which excludes energy, food, alcohol, and tobacco, decreased to 2.8% from 2.9% in July, in line with a Reuters poll.

The euro slid 0.1% against sterling and nudged 0.04% higher against the U.S. dollar after the Federal Reserve announced a September rate cut, signaling the beginning of monetary easing in the current cycle.

The euro area's biggest economy, Germany, cooled more than expected to 2% for the month, following a rise in prices.

Despite the persistence of stickiness in goods and services, economists at ING anticipate that euro zone core inflation will remain resiliently above 2.5% throughout the remainder of the year.

The ECB is expected to lower interest rates by another 25 basis points in September, following its first rate reduction in June, and another 25 basis point cut before the end of the year.

ECB policymakers would be concerned about the release's details, particularly the 4.2% services inflation, according to Kyle Chapman, foreign exchange markets analyst at Ballinger Group.

"According to Chapman, the positive headline is solely due to energy price effects, and it conceals the lack of progress in addressing underlying pressures," the note stated.

"Services inflation has been stuck at 4% for almost a year now, despite being at its highest level since October, and has been moving in the wrong direction since the spring."

Ed Smith, co-chief investment officer at Rathbones Asset Management, stated on Friday that the central bank was likely to make further rate cuts, based on ECB President Christine Lagarde's emphasis on wage inflation, while speaking ahead of the latest data print on CNBC's "Squawk Box Europe."

"In the euro zone, negotiated wages account for approximately 80% of the workforce who have wage growth negotiated for them. A significant drop in euro zone-wide negotiated wages was observed in the second quarter, which was also reflected in other indicators such as the Indeed.com listings and the ECB's telephone survey of businesses. Both of these sources suggest that falling wage intentions are contributing to the decline in negotiated wages."

He noted that the latest purchasing managers' index numbers and service sector surveys showed some stickiness in the price components of that, which would keep some ECB voting members cautious.