EUR/GBP holds below 0.8600 ahead of Eurozone inflation data, BoE's Bailey speech

• EUR/GBP softens to near 0.8575 in Tuesday's early European session. 
• Softer-than-expected German inflation data weighs on the Euro. 
• The preliminary reading of Eurozone HICP inflation data and BoE's Bailey speech will be closely watched later on Tuesday. 

The EUR/GBP cross attracts some sellers to around 0.8575 during the early European session on Tuesday. The Euro (EUR) edges lower against the Pound Sterling (GBP) due to the softer-than-expected German inflation data. Traders will take more cues from the preliminary reading of Eurozone inflation data and the Bank of England (BoE) Governor Andrew Bailey speech later on Tuesday. 

Preliminary data from the German statistics office on Monday revealed that German inflation, as measured by the Harmonized Index of Consumer Prices (HICP), eased to 2.0% YoY in June from 2.1% in the previous reading. This figure came in softer than the 2.2% expected. 

On a monthly basis, the HICP rose by 0.1% in June, compared to 0.2% in May, below the market consensus of 0.3%. The softer-than-expected German inflation readings could weigh on the shared currency in the near term.

The BoE is expected to cut interest rates three times by the end of 2025, lowering them to 3.5% to combat sluggish economic growth and a weaker labor market. Rate reductions are anticipated in August, September, and November 2025, with probable quarterly reductions.

BoE Governor Andrew Bailey said last week that there were now signs that the UK labor market was softening, and he emphasized that interest rates are likely to continue falling.  The dovish expectation from the UK central bank might help limit the downside for the cross.