EUR/GBP holds its position above 0.8500 despite the dovish ECB

• EUR/GBP experienced challenges as ECB officials suggested an interest rate cut in June.
• ECB Chief Economist Phillip Lane said that “there is enough in what we see to start interest rate cuts.”
• The Pound Sterling may struggle as moderated UK's annual inflation has tempered expectations of BoE’s rate cut in June.

EUR/GBP trades around 0.8510 during the early European hours on Monday, struggling due to dovish comments from European Central Bank (ECB) Chief Economist Philip Lane. In an interview with the Financial Times, Lane stated, “There is enough in what we see to start interest rate cuts. He thinks that they have been successful in getting inflation down in a timely manner and can move down somewhat within the zone of restrictiveness.

Additionally, ECB policymaker Piero Cipollone mentioned on Sunday that the time is right for an interest rate cut in June, as recent data has been favorable. Meanwhile, ECB President Christine Lagarde expressed confidence that Eurozone inflation is under control, indicating that an interest rate cut is likely next month.

On the data front, Germany's IFO Business Climate survey, which measures current conditions and business expectations, posted a reading of 89.3 for May. This falls short of the expected 90.3 and the previous 89.4.

In the United Kingdom (UK), the market is closed due to the Spring Bank Holiday on Monday. The Pound Sterling (GBP) received support as the traders digested lower-than-anticipated Retail Sales data released on Friday.

April saw a notable 2.3% decline in the monthly volume of sales of goods by retailers in the UK, far worse than the expected 0.4% downturn. On an annual basis, sales dipped by 2.7%, compared to the expected 0.2% decrease. Meanwhile, GfK Consumer Confidence softened to a reading of -17 in May, slightly better than the anticipated -18 reading and the previous -19.

However, the UK's annual inflation rate has moderated, edging closer to the Bank of England's (BoE) target of 2%. This moderation has tempered expectations of a rate cut in June among investors, which could put pressure on the Pound Sterling (GBP) and limit the downside of the EUR/GBP cross.