Euro consolidates against the British Pound after sliding to a one-year low

• EUR/GBP steadies after a four-day selloff that pushed the cross to a one-year low.
• Fading expectations for another ECB rate hike keep the Euro on the defensive.
• The interest rate differential between the ECB and the BoE is expected to favor the British Pound in the near term.

EUR/GBP trades in a narrow range on Friday, with the Euro (EUR) modestly outperforming the British Pound (GBP) as sellers take a breather following a four-day decline that dragged the cross to a one-year low.

At the time of writing, EUR/GBP is trading around 0.8571 and is on track to post a second consecutive weekly loss.

The recent weakness in the Euro stems from fading prospects of another European Central Bank (ECB) interest rate increase this year, following June Eurozone inflation data that surprised to the downside. Data released earlier this week showed the Harmonized Index of Consumer Prices (HICP) eased to 2.8% YoY in June from 3.2% in May, while Core HICP slowed to 2.4% YoY from 2.6%.

ECB Governing Council member Emmanuel Moulin said on Friday, "We're in a good position," adding that "the balance of risks is in the right place." He also noted that "we made sure not to signal a new hiking cycle."

Deutsche Bank said in a report that the probability of another ECB interest rate hike by September has fallen below 50%, while the odds of a rate increase by December have declined to around 70%.

This reinforces expectations that the interest rate differential between the ECB and the Bank of England (BoE) will remain in place, offering near-term support to the British Pound.

BoE Governor Andrew Bailey said on Wednesday that "rate cuts are off the table at the moment," although he acknowledged that "we've got a softening economy and labour market."

Meanwhile, traders also digested Purchasing Managers Index (PMI) data released earlier on Friday. The HCOB Eurozone Composite PMI rose to 50.0 in June from 48.5 in May, marking a three-month high.

In contrast, the S&P Global UK Composite PMI Output Index fell to 49.3 from 49.7 in May, remaining below the 50.0 threshold for a second consecutive month.