EUR/GBP slumps to fresh fortnight low below 0.8500 on multiple headwinds

• EUR/GBP tests territory below 0.8500 as the Euro weakens against Sterling after soft Eurozone Q2 Negotiated Wage Rates.
• The ECB is widely anticipated to cut interest rates again in September.
• The Pound Sterling strengthens on upbeat flash UK PMI for August.

The EUR/GBP pair posts a fresh almost three-week low near 0.8480 in Thursday's North American session. The cross weakens as the Euro is underperforming against the Pound Sterling after soft Q2 Negotiated Wage Rates boosted expectations of European Central Bank (ECB) rate cuts in September.

The ECB kicked off its policy-easing in June, and after a pause in July, it is expected to cut its key borrowing rates again in September. The data came in Thursday's European trading hours showed that Negotiated Wage Rates grew at a slower pace of 3.55% from 4.74% in the first quarter this year, easing fears of inflation remaining persistent.

Economists at ING said in a note on Thursday, "The European Central Bank has remained uncomfortable with cutting interest rates while wage growth is elevated."

Also, upbeat flash Eurozone HCOB Composite Purchasing Managers' Index (PMI) data for August fails to strengthen the Euro (EUR). The preliminary report showed that the Composite PMI unexpectedly rose to 51.2. Economists projected the overall activity to have barely expanded. Strong growth in the Eurozone economy came largely from upbeat business activity in France due to the Olympic games in Paris, while the PMI in its largest economy, Germany, contracted at a faster pace.

Meanwhile, the Pound Sterling (GBP) performs strongly against its major peers on upbeat preliminary United Kingdom (UK) S&P Global/CIPS PMI data for August has strengthened its economic outlook. The Composite PMI expanded at a faster pace, boosted by a sharp increase in activities in both manufacturing and the service sector.

A sharp growth in overall business activity appears to be the outcome of the interest rate cut by the Bank of England (BoE) on August 1. The BoE is expected to cut interest rates one more time in the last quarter of this year.