EUR/GBP holds position above 0.8500 ahead of PMI data from Eurozone, UK

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EUR/GBP retraces its recent losses from the previous session, trading around 0.8510 during the early European hours on Tuesday. The pair is supported by a stronger Euro (EUR), which is gaining ahead of key Purchasing Managers' Index (PMI) data releases from the Eurozone and Germany later in the day. Market focus will also turn to the UK's S&P Global/CIPS PMI figures.

The Euro's strength follows robust Eurozone inflation data released last Friday. However, the hotter-than-expected inflation figures are unlikely to significantly alter the European Central Bank's (ECB) monetary policy stance. ECB officials remain focused on slowing economic momentum and are downplaying inflation risks, despite new tariffs announced by US President Donald Trump adding external pressure. Markets continue to expect a 25 basis point rate cut at the ECB's June meeting, with policymakers broadly confident inflation will return to the 2% target this year.

On the other hand, the Pound Sterling (GBP) is also finding support, as the United Kingdom (UK) is seen as relatively insulated from the impact of US tariffs, unlike China or the EU, given the US posted a $12 billion goods surplus with Britain in 2024. Nevertheless, the GBP faces downside risks amid rising expectations that the Bank of England (BoE) will cut interest rates by 25 basis points to 4.25% at its policy meeting on Thursday.

Investors are also eyeing the BoE's updated economic forecasts, which may provide clues on the likelihood of additional rate cuts. Some analysts anticipate the central bank could adopt a more dovish tone in response to escalating global risks, particularly those tied to President Trump's tariffs and the potential for a broader economic slowdown.