EUR/GBP extends upside above 0.8500 as weaker UK data boosts BoE rate cut bets

• EUR/GBP extends the rally to around 0.8525 in Friday's early European session. 
• Weak UK employment data boosts BoE rate cut bets, weighing on the Pound Sterling. 
• ECB's hawkish tone provides some support to the Euro. 

The EUR/GBP cross trades in positive territory for the fifth consecutive day near 0.8525 during the early European session on Friday. A slew of weaker-than-expected UK economic data continues to undermine the Pound Sterling (GBP) against the Euro (EUR). Traders await the Eurozone April Industrial Production and Trade Balance, which are due later on Friday. The European Central Bank (ECB) policymakers are set to speak, including Frank Elderson and José Luis Escrivá.

The Pound Sterling faces some selling pressure as traders raise their bets on interest rate reductions from the Bank of England (BoE) after data earlier this week showed a deterioration in the labor market. The UK central bank is expected to cut the policy by 25 basis points (bps) in the third quarter and the fourth quarter, bringing down the bank rate to 3.75%, according to a large majority of economists polled by Reuters.

Additionally, the downbeat UK monthly Gross Domestic Product (GDP) report and Industrial Production contribute to the GBP's downside and create a tailwind for the cross. The UK economy contracted 0.3% MoM in April, compared to an expansion of 0.2% in March, the Office for National Statistics (ONS) showed on Thursday. This figure came in weaker than the expectation of a 0.1% decline in the reported period. 

On the other hand, the hawkish tone from the ECB policymakers underpins the shared currency. Croatia's central bank chief, Boris Vucic, said that the ECB is in a 'very good position' and should wait for another projection on rates. ECB President Christine Lagarde said after the policy meeting that the central bank might be approaching the end of the easing cycle.