EUR/GBP slips as strong PMIs offset by Iran relief signals

EUR/GBP held a narrow range on Friday, trading near 0.8568. Despite stronger-than-expected August flash PMIs for both the eurozone and the UK, relief signals over Iran offset some of the data's impact, leaving the cross without a clear direction.

**Strong PMIs fail to steer the pair**

Latest data showed solid August flash manufacturing and services PMIs for both the eurozone and the UK, typically seen as a positive sign of economic resilience. However, the strong figures did not provide a one-sided boost to the euro or the pound, as synchronized improvements in both economies left the exchange rate lacking clear momentum, hovering below the 0.8570 area.

**Geopolitical relief caps volatility**

Market sentiment was notably influenced by conciliatory signals from Iran. Reports suggested easing tensions in the region, which reduced safe-haven demand and weighed on the dollar, indirectly affecting the euro and pound. Earlier, sterling had come under pressure on concerns over a potential deal, but with anxiety fading, positions linked to risk aversion were unwound, limiting further upside for EUR/GBP.

**Policy expectations and economic divergence in focus**

Despite the day's upbeat data, market expectations regarding the policy paths of the European Central Bank and the Bank of England remain key to the medium-term trajectory of the cross. According to market sources, ECB President Christine Lagarde recently softened her hawkish stance, which somewhat capped the euro's strength. Going forward, a clearer divergence in eurozone and UK economic data or central bank commentary could provide more decisive direction for EUR/GBP.