EUR/GBP hovers around 0.8550, struggling to extend gains as PMI figures loom

• EUR/GBP is flat as markets take a break ahead of PMI data from both economies.
• ECB officials are being cautious about committing to a rate cut path amid concerns about a rebound in inflation.
• Sterling is getting support as last week’s economic reports increased the odds that the BoE will keep rates on hold.

EUR/GBP is hovering around 0.8540 during the early European session on Wednesday, struggling to extend its winning streak. The EUR/GBP cross may appreciate further as traders expect the European Central Bank (ECB) to gradually cut interest rates. However, ECB officials were cautious about committing to a specific rate cut program, given fears that inflationary pressures could rekindle.

On Tuesday, European Monetary Union (EMU) Harmonized Index of Consumer Prices (HICP) data reported no monthly change for July, as expected. Meanwhile, the core HICP fell by 0.2%, in line with the decline seen in June.

In the United Kingdom (UK), net public sector borrowing (excluding public sector banks) rose to £3.1bn in July from £1.3bn in the same month a year earlier and well above market expectations of £1.5 billion.

The British pound (GBP) is receiving support as last week’s UK inflation and employment reports bolstered the case for the Bank of England (BoE) to keep interest rates at 5.0% during its upcoming meeting in September. Rupert Thompson, chief economist at IBOSS, also noted: “The BoE is likely to leave rates unchanged at the September meeting, with the next rate cut likely delayed until November.”

Traders are to closely monitor purchasing managers’ index (PMI) data from the UK, the euro zone and Germany, scheduled for release on Thursday. These reports could provide deeper insight into economic conditions in both the UK and the eurozone, potentially influencing the policy decisions of their respective central banks.