EUR/GBP holds position above 0.8600 ahead of German Trade Balance data

• EUR/GBP maintains its daily gains ahead of the release of Trade Balance data from Germany.
• Traders are closely monitoring developments around the US-EU trade talks, with expectations of a preliminary agreement being reached this week.
• The Pound Sterling may struggle due to escalating fiscal risks in United Kingdom.

EUR/GBP retraces its recent losses from the previous session, trading around 0.8610 during the Asian hours on Tuesday. The pair edges higher ahead of Germany's Trade Balance data release scheduled later in the day.

However, the EUR/GBP cross lost ground as the Euro (EUR) faced challenges following Eurozone Retail Sales data for May released on Monday. The report showed sales slowed down with 1.8% growth year-over-year in May, against a revised 2.7% rise in April. The monthly sales fell 0.7%, reversing from a 0.3% prior growth (revised from 0.1%), aligning with the market expectations.

Traders are closely monitoring the development surrounding the United States (US) and the European Union (EU) trade agreement, with expecting a preliminary trade agreement this week. This agreement may allow the EU to lock in a 10% tariff rate beyond the August 1 deadline while they negotiate a permanent deal.

The EUR/GBP cross received support as the Pound Sterling (GBP) struggles amid escalating fiscal risks in United Kingdom (UK). Chancellor Rachel Reeves indicated at possible tax hikes in the autumn budget to address a public finance gap, possibly driven by the increase in the welfare spending bill by the administration. Moreover, Labor Party retreated on welfare reforms to avoid internal rebellion, with Reeves admitting there were costs to those concessions.

Deutsche Bank's Analysts indicated another 25 basis points interest-rate cut to 4% by the Bank of England (BoE) in August. The analysts also anticipated the central bank to deliver two more interest rate cuts in November and December.