EUR/GBP rises toward 0.8550 as HCOB Manufacturing PMI reaches the highest since March 2023

• EUR/GBP appreciates as Eurozone Manufacturing PMI increased to 47.3 in May, the highest reading since March 2023.
• ECB is expected to deliver a 25-basis point rate cut on Thursday.
• Citi/YouGov survey indicated UK public expectations for inflation for the next 12 months have declined to the lowest since July 2021.

EUR/GBP continues to rise for the third successive session, trading around 0.8530 during the European hours on Monday. The appreciation in the currency cross can be attributed to the HCOB Eurozone Manufacturing PMI, which increased to 47.3 in May from 45.7 in April, slightly below the preliminary estimate of 47.4. This is the highest reading since March 2023, indicating the slowest decline in the Eurozone manufacturing sector in over a year.

Investors have factored in the European Central Bank (ECB) to cut interest rates on Thursday, but it may signal a halt in July and slower rate reductions in the coming months. Financial markets have priced in nearly 25 basis points (bps) of ECB rate cuts in June and 57 bps of cuts in 2024, according to Reuters.

Traders will closely monitor ECB President Christine Lagarde's press conference for fresh signals on the pace of rate cuts after June. Any dovish message from the ECB is likely to weigh on the Euro and create a headwind for the EUR/GBP cross.

In the United Kingdom (UK), investors remain uncertain about the Bank of England’s (BoE) rate-cut time frame. Although UK annual headline inflation significantly dropped to 2.3% in April, BoE policymakers are still concerned about the slower progress in the disinflation process within the services sector. As per Citi/YouGov survey, UK public expectations for inflation for the next 12 months have declined to 3.1% in May, the lowest level since July 2021, per a Reuters report on Friday.