• EUR/GBP edges lower on Wednesday as the Pound Sterling remains supported by expectations of tighter monetary policy.
• Eurozone manufacturing activity reaches its highest level in nearly four years, according to March PMI data.
• Markets remain focused on inflation trends and central bank policy paths amid ongoing geopolitical tensions.

EUR/GBP trades around 0.8725 on Wednesday at the time of writing, down 0.10% on the day. The pair is edging lower as the Pound Sterling (GBP) remains supported by expectations of tighter monetary policy in the United Kingdom (UK), limiting the Euro’s (EUR) gains despite relatively solid economic data from the Eurozone.

Latest figures show that the Eurozone’s HCOB Manufacturing Purchasing Managers Index (PMI) was revised to 51.6 in March, up from the preliminary estimate of 51.4 and from 50.8 recorded in February. The final reading marks the strongest performance for the sector in 44 months, pointing to a gradual improvement in industrial activity across the region.

Upward revisions were mainly driven by stronger activity in Germany and Italy, while France’s manufacturing sector was revised down to stagnation. Spain, meanwhile, unexpectedly recorded a contraction in manufacturing activity, highlighting the uneven nature of the recovery across the Eurozone’s major economies.

Meanwhile, the Eurozone's preliminary yearly inflation data, released on Tuesday, showed that price growth in March came in below expectations, despite the geopolitical tensions linked to the conflict with Iran. This softer-than-expected inflation reading has provided additional support to the Euro, as investors anticipate that the economic impact of the conflict could remain limited and potentially short-lived.

On the UK side, the Pound Sterling continues to find support after the Bank of England (BoE) signaled the possibility of a rate hike as early as April amid inflation risks linked to Middle East tensions. These expectations are helping cap further upside in EUR/GBP.

However, recent UK macroeconomic data have been somewhat mixed. The S&P Global Manufacturing PMI for the United Kingdom fell to 51 in March, from 51.4 previously, missing market expectations of 51.2 and indicating a modest slowdown in manufacturing sector growth.