EUR/GBP gathers strength to above 0.8650, all eyes on ECB rate decision

• EUR/GBP strengthens to around 0.8670 in Thursday's early European session. 
• The US and EU close in on a 15% tariff deal. 
• ECB is expected to hold key interest rates as the tariff deadline looms. 

The EUR/GBP cross trades in positive territory near 0.8670 during the early European session on Thursday, bolstered by optimism surrounding the European Union (EU) and the United States (US) trade deal. The European Central Bank (ECB) interest rate decision will take center stage later on Thursday. 

The Financial Times reported late Wednesday that the EU and US are closing in on a trade deal that would impose 15% tariffs on EU imports. The bloc could agree to the so-called reciprocal levies to avoid US President Donald Trump's threat to raise them to 30% from August 1. Hope for the EU-US trade agreement provides some support to the Euro (EUR) against the Pound Sterling (GBP). 

The ECB is set to keep interest rates on hold at its July meeting on Thursday, pausing after seven consecutive cuts amid the uncertainty from US tariffs. "The ECB is widely expected to keep policy on hold this week, as uncertainty prevails with no trade deal yet on the horizon between the U.S. and EU," said Christophe Boucher, chief investment officer at ABN AMRO Investment Solutions. Analysts expect one more ECB rate cut by the end of the year, most likely in December, according to Reuters. 

On the GBP's front, traders are increasingly confident that the Bank of England (BoE) will cut interest rates at its August monetary policy meeting. This, in turn, could drag the GBP lower against the EUR. Meanwhile, traders will keep an eye on the release of preliminary UK S&P Global Purchasing Managers' Index (PMI) data of July on Thursday. In case of a stronger-than-expected outcome, this could help limit the GBP's losses in the near term.