EUR/GBP trades in the red below 0.8600 mark ahead of ECB rate decision

• EUR/GBP edges lower and reverses a part of Wednesday's recovery gains from the weekly low.
• A modest USD uptick weighs on the Euro and exerts pressure on the cross ahead of the ECB.
• Hopes for a UK-US trade deal and bets for less aggressive BoE rate cuts underpin the GBP.

The EUR/GBP cross struggles to capitalize on the previous day's goodish rebound from the 0.8525-0.8520 area or a fresh weekly low and attracts some intraday sellers on Thursday. Spot prices remain depressed below the 0.8600 mark through the first half of the European session, though the downside remains cushioned as traders opt to wait on the sidelines ahead of the key central bank event risk.

The European Central Bank (ECB) is scheduled to announce its policy decision later today and is widely expected to cut its key interest rate by 25 basis points (bps). This would mark the sixth consecutive rate reduction amid the softening inflation in the Eurozone and the uncertainty over US President Donald Trump's trade policies. A blanket 10% import duty remains in place despite Trump's U-turn on the so-called reciprocal tariffs announced earlier this month.

In the meantime, a modest US Dollar (USD) bounce from the vicinity of a multi-year low seems to weigh on the Euro, which, in turn, acts as a headwind for the EUR/GBP cross. The British Pound (GBP), on the other hand, continues with its relative outperformance in the wake of hopes that the UK will eventually strike a trade deal with the US. In fact, US Vice-President JD Vance said there was a "good chance" a trade deal could be reached with the UK.

This, to a larger extent, overshadows the softer-than-expected UK consumer inflation figures released on Wednesday. The Office for National Statistics reported that the headline UK Consumer Price Index (CPI) slowed to an annual rate of 2.6% in March from 2.8% in the previous month. Investors, however, seem convinced that an all-out global trade war would pressure prices, which, in turn, backs the view that the Bank of England (BoE) will lower borrowing costs more slowly.

The aforementioned fundamental backdrop suggests that the path of least resistance for the EUR/GBP cross is to the downside.  However, the lack of any meaningful selling warrants some caution before positioning for an extension of the recent pullback from the 0.8735-0.8740 region, or the highest level since November 2023 touched last Friday.