EUR/GBP weakens to near 0.8650 on tariff tensions

• EUR/GBP declines to near 0.8660 in Monday's early European session. 
• The EU is preparing a retaliation plan as trade tensions escalate. 
• Weaker UK job data prompted the prospect of a BoE interest rate cut next month. 

The EUR/GBP cross loses momentum to around 0.8660 during the early European session on Monday. The Euro (EUR) softens against the Pound Sterling (GBP) due to renewed trade tensions between the United States (US) and the European Union (EU) ahead of the tariff deadline on August 1.

European Union policymakers are scheduled to meet as early as this week to discuss a retaliation plan if no deal is reached with US President Donald Trump, whose tariff negotiating position is seen to have stiffened ahead of an August 1 deadline. Trump was pushing for a tariff of 15% to 20% minimum on all EU goods. Alongside a universal levy, Trump has imposed a 25% duty on cars and auto parts, as well as steel and aluminum. The fears of trade tensions might undermine the shared currency in the near term. 

On the other hand, rising expectations that the Bank of England (BoE) could cut the interest rate in August might weigh on the GBP and create a tailwind for the cross. The UK Unemployment Rate ticked higher to 4.7% in the three months to May versus 4.5% prior, the UK Office for National Statistics reported on Thursday. This figure came in below the expectations of 4.6% during the reported period.

Money markets have priced in nearly an 89% chance that the BoE will lower borrowing costs in August, up from an 87% possibility on Wednesday. Analysts expected the UK central bank to deliver two interest rate reductions by the end of the year, which would take the bank rate down to 3.75%.