EUR/GBP moves below 0.8500 as UK faces the lowest additional US duty

• The EUR/GBP pair weakens as the Pound Sterling strengthens on rising optimism over a potential UK-US trade agreement.
• BoE Governor Bailey highlighted the risks stemming from intensifying global trade tensions, urging policymakers to factor these into future decisions.
• The Euro remains under pressure amid growing expectations of additional rate cuts by the European Central Bank.

Crude prices find support as bullish momentum strengthens following Trump's firm warning of secondary sanctions against countries importing Iranian oil.

EUR/GBP edges slightly lower during Asian trading on Friday, hovering around 0.8490 after posting gains in the previous two sessions. The Pound Sterling (GBP) found support amid growing optimism that the UK could secure a trade agreement with Washington.

Market sentiment was further bolstered by expectations that the impact of reciprocal tariffs under Donald Trump's trade policies would be limited, given that the UK faces the lowest additional US duty of just 10% among major trading partners.

Despite this, downside pressure on the EUR/GBP pair may be capped, as the British Pound continues to encounter headwinds from ongoing economic uncertainty. Recent UK economic data has been underwhelming, and corporate earnings have offered mixed signals, contributing to a cautious market tone.

In April, UK manufacturing struggled, with final PMI data confirming continued contraction. Export orders saw their sharpest decline in nearly five years, pressured by rising costs from US tariffs and increased domestic employer taxes.

Adding to the cautious outlook, Bank of England (BoE) Governor Andrew Bailey flagged the risks posed by escalating global trade tensions, urging consideration of such factors in future policy decisions. These concerns have led traders to increase bets on a BoE rate cut at the upcoming May 8 policy meeting. Markets have priced in a near-96% probability of a 25 basis point reduction to 4.25%, according to a Reuters poll.

Meanwhile, the Euro (EUR) remains under pressure as expectations grow for further rate cuts by the European Central Bank (ECB). Market participants have nearly fully priced in a 25 basis-point cut at the ECB's June meeting, with policymakers forecasting slower inflation and economic growth amid the impact of US-imposed tariffs on Europe.