OTTAWA, Oct 17 Reuters Canada39;s annual inflation rate unexpectedly slowed to 3.8 in September and underlying core measures also eased, data showed on Tuesday, prompting markets and analysts to trim bets for another interest rate hike next week.

Analysts polled by Reuters had forecast inflation to hold steady at the 4.0 rate recorded in August. Monthovermonth, the consumer price index was down 0.1, Statistics Canada said, lower than a forecast for a 0.1 gain.

It39;s pretty clear that the central bank won39;t be raising rates when it announces its policy decision on Oct. 25, said Jules Boudreau, senior economist at Mackenzie Investments.

Two of the Bank of Canada39;s BoC39;s three core measures of underlying inflation also decelerated. CPImedian edged down to 3.8 from 4.1 in August, while CPItrim decreased to 3.7 from 3.9.

Money markets trimmed bets for a rate hike next week after the data. They now see a 16 chance for a rate increase next week, down from 43 before the figures.

The Canadian dollar weakened as much as 0.7, hitting its weakest since Oct. 6 at 1.3702 per U.S. dollar, or 72.98 U.S. cents.

The Canadian 2year yield eased 2.5 basis points to 4.877 even as U.S. rates moved higher following strongerthanexpected U.S. retail sales data.

Headline inflation had outpaced expectations in the previous two months, stoking fears that the Bank of Canada39;s 10 rate hikes since March of last year might not have been enough to cool prices. At 3.8, inflation is still…