EUR/GBP supported by dovish BoE tone and persistent UK fiscal headwinds

• EUR/GBP trimms earlier losses as the Pound struggles amid ongoing UK fiscal uncertainty.
• BoE's Ramsden expects wage and service price pressures to continue easing, leaving room for further monetary policy easing.
• Traders await the Eurozone flash inflation readings and UK final Q2 GDP for fresh policy clues.

The Euro strengthens against the British Pound on Monday, with EUR/GBP recovering to around 0.8742 at the time of writing after briefly dipping to a one-week low earlier in the day. The cross gained traction as the Pound remains pressured by ongoing UK fiscal worries, while slightly dovish remarks from Bank of England (BoE) Deputy Governor Dave Ramsden added to the drag on Sterling.

BoE Deputy Governor Dave Ramsden said on a panel at a European Central Bank conference on Monday that there is "scope for further removal of policy restraint," while emphasising that a "gradual and careful approach on rates is appropriate." Ramsden noted that the UK labour market "continues to loosen, with wage growth normalising" and that "wage settlements are now broadly in line with pay surveys."

He added that while headline inflation is likely to "rise slightly further before peaking," he is "confident we'll get inflation back to target" and sees the risks to the outlook as "balanced."

UK fiscal policy remained a headwind for Sterling. Earlier on Monday, Chancellor Rachel Reeves reiterated her commitment not to raise VAT, income tax, or National Insurance during the current Parliament in an effort to reassure households and businesses amid growing speculation over potential tax hikes.

She nevertheless refused to rule out other revenue-raising measures, stressing the need for "economic discipline" as the government grapples with elevated borrowing costs and persistent budget pressures.

On the Ruro side, sentiment data released earlier on Monday painted a mixed but steady picture. The European Commission's Business Climate Index slipped to -0.76 in September from -0.72 in August. Consumer Confidence remained unchanged at -14.9, in line with forecasts, while the Economic Sentiment Indicator edged up to 95.5 from an upwardly revised 95.3 in August.

Looking ahead, the focus will shift to the flash September inflation data in the Eurozone, with national readings from Germany, France and Italy due on Tuesday and the bloc-wide figure on Wednesday. Spain's preliminary numbers, released earlier on Monday, pointed to a slight moderation in monthly price pressures alongside stable annual rates.

In the UK, attention will also turn to the final second-quarter Gross Domestic Product (GDP) data due on Tuesday.