EUR/GBP softens to near 0.8650 ahead of German, Eurozone PMI releases

• EUR/GBP edges lower to around 0.8650 in Thursday's early European session. 
• Tariff uncertainty between the US and EU undermines the Euro against the Pound Sterling. 
• Rising market anxieties over the UK's debt position might help limit the EUR/GBP's losses. 

The EUR/GBP cross loses ground to near 0.8650, snapping the four-day winning streak during the early European session on Thursday. The HCOB Services and Composite PMI reports from Germany and the Eurozone will be the highlights later on Thursday.

Inflation in the Eurozone edges up in June, hitting the European Central Bank's (ECB) target and raising expectations that policymakers will leave the key interest rate unchanged later this month. Financial markets forecast one more ECB rate reduction to 1.75% toward the end of the year, followed by a period of steady rates before potential hikes around the end of 2026.

The US made a fresh proposal to the European Union's (EU) negotiation team last week. European negotiators will meet with their US officials later this week, hoping to reach an agreement in the following days. European officials expect an update about trade talks on Friday, but the situation remains unsettled. The trade tariff uncertainty between the US President Donald Trump's administration and the Eurozone could dampen the sentiment and drag the shared currency lower in the near term.

On the other hand, the British bonds had their biggest selloff since October 2022, and the Pound Sterling (GBP) faces some selling pressure after the UK government sharply scaled back plans to cut benefits. Recent market reaction reflects the market concerns about the credibility of the government to bring down fiscal deficits. Rising market anxieties over the UK's debt position might weigh on the GBP in the near term and create a tailwind for the major pair. 

"It's not just the British pound that is sharply lower but the gilts are under a lot of pressure as well. I think it's just a crisis of confidence in the Labour government," said Marc Chandler, chief market strategist at Bannockburn Global Forex LLC.