EUR/GBP softens to below 0.8450 on increased tariff tensions

• EUR/GBP edges lower to 0.8445 in Tuesday's early European session. 
• EU said it will prioritize negotiations with the US to resolve trade disputes.
• A gradual and careful approach from the BoE supports the Pound Sterling. 

The EUR/GBP cross loses ground to near 0.8445, snapping the three-day winning streak during the early session on Tuesday. The Euro (EUR) weakens against the Pound Sterling (GBP) amid the renewed trade tensions. Traders brace for the preliminary reading of the Harmonized Index of Consumer Prices from the Eurozone, which is due later on Tuesday.

The EU said on Monday that it would make a strong case this week for the US to reduce or eliminate tariffs even after Trump said he would double import duties on steel and aluminium to 50%, effective on Wednesday. Traders will closely monitor the developments surrounding the US-EU negotiation, as the Trump administration has asked its trade partners to submit their best offers in order to finalize deals before July 8. Any signs of trade talks progress could help limit the shared currency's losses. 

The European Central Bank (ECB) is widely expected to cut its policy rate by another 25 basis points (bps) at its June meeting, bringing its deposit rate to 2.00%. Traders will take more cues from the speech from the ECB President Christine Lagarde later on Tuesday. The dovish remarks from Lagarde might weigh on the EUR's downside. 

On the other hand, the rising expectation that the Bank of England (BoE) will pause its interest rate reductions could underpin the GBP and act as a headwind for the cross. The futures markets have priced in borrowing rates to fall by around 38 bps by the end of this year, implying one 25 bps rate cut and a roughly 50% chance of a second reduction, according to a report from Reuters.