EUR/GBP hovers near 0.8500 as soft Eurozone inflation, dovish BoE shape outlook

• EUR/GBP may depreciate due to weaker-than-expected preliminary April HICP data from the Eurozone's largest economies.
• Markets have largely priced in a 25 basis point rate cut by the ECB at its June meeting.
• The Pound Sterling weakens as markets are now anticipating a BoE 25 basis point rate cut in May.

EUR/GBP holds ground for a second consecutive session, trading around the 0.8500 mark during the Asian session on Thursday. However, the upside of the EUR/GBP cross may be capped as the Euro (EUR) trades cautiously following weaker-than-expected preliminary April Harmonized Index of Consumer Prices (HICP) data from Germany and France, along with steady readings from Italy and Spain.

These figures suggest moderate inflationary pressures across the Eurozone's largest economies, reinforcing market expectations for further monetary easing by the European Central Bank (ECB). A 25 basis point rate cut is now almost fully priced in for the ECB's June meeting, as policymakers anticipate further declines in inflation and economic activity amid the impact of new US tariffs on its trading partners.

Despite potential headwinds for the Euro, the EUR/GBP cross may find support from a weakening Pound Sterling (GBP) against its peers, as sentiment turns increasingly dovish toward the Bank of England (BoE). Markets are now anticipating a 25 basis point rate cut at the BoE's upcoming policy decision on May 8. These expectations have intensified on concerns that the US's new tariff measures could reduce global inflation and weigh on UK economic growth.

BoE policymaker Megan Greene added to the dovish tone, stating in a speech at the Atlantic Council on Friday that the potential trade conflict would have a "net disinflationary" effect on the UK economy. Greene also flagged labor market risks, citing the recent increase in employers' national insurance contributions from 13.8% to 15%, which took effect this month.