EUR/GBP hovers near 0.8450 ahead of PMI data from Eurozone, United Kingdom

• EUR/GBP receives support ahead of the PMI readings from the Eurozone, Germany, and the UK.
• The Euro may face challenges as traders expect the ECB to implement a series of rate cuts.
• The Pound Sterling could face challenges amid the latest softer economic data from the United Kingdom.

EUR/GBP recovers after registering losses in the previous session, trading around 0.8440 during early European hours on Friday. The EUR/GBP cross gains traction ahead of the preliminary January readings for the HCOB Purchasing Managers Index (PMI) from the Eurozone and Germany. Traders are also eyeing the release of the UK’s preliminary S&P Global PMI data.

The Euro strengthens against its peers, supported by improved risk sentiment following recent comments from US President Donald Trump. Trump called for an immediate interest rate cut by the US Federal Reserve, citing falling Oil prices as a reason. “With oil prices going down, I’ll demand that interest rates drop immediately, and likewise, they should be dropping all over the world,” Trump stated during the World Economic Forum in Davos, Switzerland.

However, the Euro's upside may be capped as markets expect the European Central Bank (ECB) to implement a series of rate cuts, with a 25 basis point reduction anticipated at each of the next four policy meetings. These expectations are fueled by concerns over the Eurozone’s economic outlook and subdued inflationary pressures.

Meanwhile, the Pound Sterling (GBP) faces challenges after disappointing UK data, including weaker-than-expected December inflation and retail sales, declining labor demand through November, and sluggish GDP growth.

The softer economic reports from the United Kingdom (UK) have strengthened expectations of a 25 basis point rate cut by the Bank of England (BoE) in February, with markets now pricing in a near-certain reduction of the BoE’s policy rate to 4.5% at its next meeting. As a result, the upside potential for the British Pound may remain constrained in the near term.