EUR/GBP weakens as Pound holds firm ahead of UK, Eurozone GDP data

• EUR/GBP slips below 0.8650 after failing to hold Tuesday's rebound.
• The British Pound draws support from steady UK unemployment at 4.7% and wage growth near 5%.
• Traders await UK and Eurozone Q2 GDP data on Thursday.

The Euro (EUR) extends its decline against the British Pound (GBP) on Wednesday, with EUR/GBP coming under renewed selling pressure after failing to sustain Tuesday's overnight bounce. At the time of writing, the pair trades near 0.8625 in the early American session, down around 0.25% on the day.

In the broader currency market, moves are also being influenced by a softer US Dollar after the latest US Consumer Price Index (CPI) report reinforced expectations of an imminent Federal Reserve (Fed) rate cut in September. Markets are now pricing in a near-certainty of a 25 basis point cut with one additional cut by the end of this year.

Sterling's strength remains underpinned by solid UK wage data and cautious signals from the Bank of England (BoE). Earlier this month, the BoE delivered a narrow 25 basis point cut to 4.00%, the lowest level since March 2023, but policymakers stressed they remain data-dependent. UK labour market figures this week showed unemployment steady at 4.7%, while regular pay growth held close to 5% annually -- a sign that wage-driven inflation pressures remain in play. Markets have since scaled back expectations for another cut before November, lending further support to the Pound.

The Euro, meanwhile, remains under pressure from soft economic sentiment, with the ZEW Economic Sentiment Index for the Eurozone tumbling to 25.1 in August from 36.1, and Germany's reading sliding to 34.7 from 52.7. Germany's latest inflation data offered no fresh support, with the Harmonized Index of Consumer Prices (HICP) rising 0.4% in July, in line with forecasts and the previous month's print, while the annual rate held steady at 1.8%.

Looking ahead, traders will focus on fresh growth figures from both the UK and the Eurozone on Thursday, with second-quarter Gross Domestic Product (GDP) data scheduled for release. The Eurozone's preliminary Employment Change reading for Q2 will also be closely watched for indications of labour market strength. In addition, uncertainty surrounding the upcoming US-Russia peace talks could keep investors cautious and influence broader market sentiment.