The Euro (EUR) is retreating against the British Pound (GBP) on Thursday, slipping from a 3½-month high of 0.8670 reached on Wednesday. This pullback comes amid growing political and fiscal uncertainties in the UK, particularly surrounding Chancellor Rachel Reeves, whose emotional appearance in Parliament and a string of policy U-turns sparked worries about a widening budget gap.

However, UK Prime Minister Keir Starmer’s vocal backing of Reeves on Wednesday has helped restore some stability, alleviating fears of deeper political fallout. This, in turn, has boosted investor confidence in UK assets, with UK Gilts rebounding sharply after Wednesday’s sell-off, further supporting the Pound.

On the economic data front, the UK S&P Global Services PMI was revised upward to 52.8 from an initial estimate of 51.3, marking the strongest expansion in nearly a year and suggesting improved momentum in the country’s dominant services sector. This positive surprise has helped offset strong Eurozone figures, where the HCOB Services PMI rose to 50.5 in June, returning the bloc’s services sector to growth after May’s 49.7.

Despite the Eurozone’s modest service sector rebound, the market appears more encouraged by the UK’s internal resilience and less concerned—for now—about the Eurozone’s growth or the ECB’s rate direction. These factors, combined with the political reassurances in the UK, have helped stall the Euro’s recent rally.

Trade Idea:

EUR/GBP could remain under pressure, targeting support near 0.8570, while resistance lies at 0.8670. A sustained break below 0.8600 may indicate further GBP strength amid improving UK sentiment and macro data.