Euro holds steady vs British Pound after stronger Eurozone, UK data

• EUR/GBP trades around 0.8550 on Friday, little changed on the day.
• Flash PMIs from Germany, the Eurozone and the United Kingdom all beat market expectations.
• Risk aversion driven by Middle East tensions limits the reaction of European currencies.

EUR/GBP trades around 0.8550 at the time of writing on Friday, remaining broadly stable despite a series of stronger-than-expected economic releases from the Eurozone and the United Kingdom (UK). Investors continue to favor a cautious stance as escalating geopolitical tensions in the Middle East overshadow the positive macroeconomic data and keep currency market moves limited.

Preliminary S&P Global surveys point to a stronger-than-expected improvement in economic activity across Germany and the Eurozone. Germany's Manufacturing Purchasing Managers Index (PMI) jumps to 52.2 in July from 50.3 in June, well above the 50.1 consensus forecast. Germany's Composite PMI also returns to expansion territory at 51.2, supported by a strong rebound in manufacturing activity, while the services sector remains slightly below the 50 threshold.

Across the Eurozone, Manufacturing PMI also accelerates, rising to 52 from 51.4 and beating expectations of 51.3. Services activity also returns to expansion territory with a reading of 51.6, lifting the Composite PMI to 51.9, comfortably above market expectations. Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said the Eurozone economy is enjoying a welcome revival in July, while warning that the geopolitical environment continues to cloud the outlook.

The British Pound (GBP) also draws support from stronger domestic data. UK Retail Sales rise by 1% MoM in June, defying expectations for a 0.3% decline. Meanwhile, the preliminary S&P Global surveys show the Services PMI returning to expansion at 51.8, while the Manufacturing PMI accelerates to 52.8, both exceeding market forecasts. As a result, the Composite PMI climbs to 52.1, pointing to stronger overall business activity at the start of the third quarter.

On the monetary policy front, European Central Bank (ECB) Governing Council member Martin Kocher said he sees no hard evidence of second-round inflation effects, while stressing that the ECB remains vigilant and stands ready to act should the inflation outlook deteriorate. He nevertheless acknowledged that recent developments in Oil markets remain a source of concern.

Despite the encouraging economic releases, the Euro (EUR) and the British Pound struggle to extend their gains. Concerns about the economic consequences of the conflict in the Middle East, higher energy prices and the latest tariff announcements from the US President Donald Trump administration continue to fuel risk aversion, supporting safe-haven assets and limiting moves in EUR/GBP.