• EUR/GBP looks to gain ground above 0.8700 psychological level.
• Eurozone PMI data provided support for the Euro.
• BoE’s surprise decision to pause its rate hike cycle has undermined the Pound Sterling (GBP).

EUR/GBP continues the winning streak that began on Wednesday, trading higher around 0.8700 psychological level during the Asian session on Monday. The pair is continuing to experience upward support after the release of the Eurozone PMI data, coupled with the dovish policy decision by the Bank of England (BoE) in the previous week.

HCOB Services PMI released on Friday, increased to 48.4 in September from 47.9 in August, surpassing the expected reading of 47.7. The Eurozone PMI Composite rose to 47.1 from 46.7 in August, exceeding the anticipated figure of 46.5 and reaching a two-month high.

However, the HCOB Purchasing Managers' Index survey, showed that the Eurozone Manufacturing Purchasing Managers Index (PMI) declined to 43.4 in September, below the market consensus of 44.0 and the previous reading of 43.5.

On early Friday, European Central Bank (ECB) Chief Economist Phillip Lane emphasized that inflation above 2% is costly for the economy and that central banks aim to control inflation over the medium term.

Furthermore, the Bank of France President Francois Villeroy de Galhau spoke in a weekend interview that he is in no rush to raise rates further after hiking to 4.00% last week, according to Bloomberg.

Additionally, economists in a Reuters poll expect the ECB to conclude its rate-hike cycle and remain on hold until at least July next year.

Weekend reports suggest that the windfall tax on Italian banks, which had already been reduced since its implementation in August, may be effectively repealed. Instead of paying the tax, which would have been 40% of extra profits from 2021 to 2023, banks could potentially avoid it by allocating 2.5 times the amount of the tax to bolster their Tier 1 capital ratios.

On the United Kingdom’s (UK) side, the Bank of England (BoE) decided not to proceed with a widely anticipated interest rate hike on Thursday, citing inflation figures for the UK economy that were generally lower than expected.

The BoE’s surprise decision to pause its rate hike cycle has contributed to the British Pound's (GBP) relative underperformance. This development is also viewed as a factor putting downward pressure on the EUR/GBP pair. It's worth noting that the UK central bank had previously implemented 14 consecutive interest rate hikes.

Investors await ECB President Christine Lagarde's speech due later in the day, which may provide some further cues on the interest rates trajectory in the future.