EUR/GBP flat lines below 0.8750 as traders brace for German IFO Survey release

• EUR/GBP holds steady around 0.8735 in Wednesday's early European session. 
• French economic activity contracted in September. 
• Concerns about new tax hikes in the UK hit optimism and could undermine the GBP.

The EUR/GBP cross trades on a flat note near 0.8735 during the early European trading hours on Wednesday. However, the concerns over the economic downturn in France, the second-largest economy within the Eurozone, could weigh on the Euro (EUR) against the Pound Sterling (GBP). Traders will keep an eye on the German September IFO Business Survey later on Wednesday. 

Data released on Tuesday showed that the HCOB Flash France Composite Purchasing Managers' Index (PMI) fell to 48.4 in September from 49.8 in August, marking its most severe contraction in five months. This figure came in weaker than the expectation of 49.9. Meanwhile, both the manufacturing and services sectors declined sharply in September. 

"That stands in contrast to Germany, where service activity picked up according to the PMI. With heightened political uncertainty, the French economy appears to be mirroring this sense of instability," said Bert Colijn at ING.

Traders will take more cues from Germany's IFO business survey for September on Wednesday. The headline IFO Business Climate Index is projected to rise to 89.3 in September from 89.0 in August. If the report shows a better-than-estimated outcome, this could lift the EUR in the near term. 

On the other hand, UK businesses reported a loss of momentum and confidence ahead of possible new tax hikes in Finance Minister Rachel Reeves' next budget in November. This, in turn, might exert some selling pressure on the GBP and act as a tailwind for the cross. Last week, public finance figures showed that public sector net borrowing hit £18 billion, the highest for the month in five years. Economists expected government borrowing to come in significantly lower at £12.8 billion.