EUR/GBP recovery remains capped below 0.8665 with Eurozone inflation on focus

• The Euro crawls higher against the Pound but remains capped below 0.8665.
• UK and Eurozone Manufacturing PMIs and Eurozone HICP figures might determine the pair's direction later today.
• Heightened hopes of a BoE rate cut in August are increasing bearish pressure on the GBP.

The Euro extends its recovery against the Sterling for the second consecutive day on Friday. Still, price action remains contained below the 0.8665 with investors awaiting manufacturing activity figures from the Eurozone and the UK ahead of July’s final Eurozone HICP figures.

The Pound remains on its back foot ahead og the final Manufacturing PMI release, which is expected to confirm that the sector’s activity improved to 48.2 from 47.7 in the previous month, but still at contraction levels.

In the Eurozone, final PMI is likely to confirm that manufacturing PMI improved to 49.8 in July from 49.5 in June, but more importantly, Consumer Prices are seen easing below the ECB’s 2% rate, a positive development in the context of increasing economic and trade uncertainty.

With both economies facing similar hurdles, the monetary policy divergence is weighing the Pound against the Euro. The softer consumption and employment figures seen in the UK have heightened speculation that the BoE might cut rates after its August meeting, while the ECB rhetoric suggests that the bank might have reached its terminal rate.