EUR/GBP weakens below 0.8400 amid prospect of ECB rate cuts  

• EUR/GBP softens near 0.8375 in Thursday's early European session. 
• Weak German employment data increased hopes of an ECB June cut, weighing on the Euro. 
• BoE guided a gradual and cautious interest rate cut approach.

The EUR/GBP cross remains under selling pressure around 0.8375 during the early European session on Thursday. The Euro (EUR) weakens against the Pound Sterling (GBP) due to weak Eurozone data. Later on Thursday, Bank of England (BoE) Deputy Governor Sarah Breeden is set to speak.

Data released by the German Statistics Office on Wednesday showed that the Unemployment Rate in Germany remained steady at 6.3% in April. Meanwhile, Unemployment Change rose by 34K in April versus 4K prior. This figure came in above the market consensus of 11K. The downbeat data strengthens the case for further European Central Bank (ECB) easing in June, which drags the shared currency lower.

ECB Governing Council member Francois Villeroy de Galhau said more rate cuts could be on the way, with little sign at present of upward pressure on consumer prices. Rothschild Wealth Management analyst Bastian Freitag expected that the ECB will reduce interest rates by 25 basis points (bps) next week, bringing the deposit rate down to 2.00%.

On the other hand, the unexpectedly strong UK Consumer Price Index (CPI) inflation and Retail Sales have prompted investors to dial back hopes for a BoE rate cut in August. This, in turn, could provide some support to the GBP and act as a headwind for the cross. 

The chance of a BoE rate cut in August was reduced to 40% by investors, down from 60% before the inflation data, according to Reuters. However, interest rate futures pricing suggested investors saw about 37 basis points (bps) of BoE rate reductions by the end of 2025.