EUR/GBP strengthens to near 0.8700, eyes on ZEW surveys

• EUR/GBP gathers strength around 0.8690 in Tuesday's early European session. 
• Downbeat UK GDP data raise concerns over ballooning fiscal risks, weighing on the Pound Sterling. 
• The EU threatened retaliatory tariffs on US goods after Trump's surprise 30% tariffs.

The EUR/GBP cross trades in positive territory for the third consecutive day near 0.8690 during the early European session on Tuesday. The Pound Sterling (GBP) weakens against the Euro (EUR) as the UK Gross Domestic Product (GDP) shrank for a second consecutive month in May, raising concerns over ballooning fiscal risks. Traders brace for the ZEW Survey from Germany and the Eurozone, which are due later on Tuesday. 

The UK economy unexpectedly contracted again in May, declining 0.1% month-on-month in May, data showed on Friday. Economists expect growth to slow in the rest of the year amid a weaker jobs market and ongoing economic uncertainty, while the Bank of England (BoE) forecasts a lackluster 1% growth rate in 2025. Money markets are now pricing in a nearly  80% possibility of an August cut. These downbeat UK economic data and rising BoE rate cut bets could weigh on the GBP and create a tailwind for the cross in the near term.  

On the Euro front, renewed trade tensions between the US and the European Union (EU) might cap the upside for the EUR. The Wall Street Journal reported on Tuesday that the bloc is preparing tariffs on US goods, including aircraft, alcohol, coffee, and medical devices worth 72 billion euros ($84 billion) in case no trade deal is reached by August 1. This action came after Trump threatened to impose a 30% tariff on imports from the EU and Mexico beginning early August.