Explanation

The functional currency is the currency of the primary economic environment in which the entity operates. According to IAS 21, the functional currency is determined based on the currency that mainly influences sales prices for goods and services, the currency of the country whose competitive forces and regulations mainly determine the sales prices, and the currency that mainly influences labor, material, and other costs.

In this case:

• The subsidiary is located in the UK but primarily conducts business in EUR
• The fact that it primarily conducts business in EUR suggests that EUR is the currency that mainly influences its sales prices and costs
• GBP is the reporting currency (for local regulatory purposes), but not necessarily the functional currency
• USD is the parent's currency, which is not relevant for determining the subsidiary's functional currency

Therefore, EUR is most likely the functional currency as it represents the primary economic environment in which the subsidiary operates.