EUR-GBP

What is EUR/GBP

EURGBP is the ticker symbol for the euro and British pound sterling exchange rate. The pair represents the biggest economies of Europe (the United Kingdom and the European Union) that are massively interlinked. Smooth flow of capital between the economies has made the EURGBP maintain a relatively stable price action compared to other forex pairs.

The EURGBP is a ‘cross pair’ (no USD) and falls under the ‘minors’ group in the forex market. Minors have cheaper spreads compared to exotic currency pairs. The pair is also known as ‘Chunnel’, which is a reference to the Channel Tunnel that connects the UK and France (Europe). In the EURGBP forex rate, the EUR is the base currency, while the GBP is the quote currency. This means that at any given time, the price of EURGBP pair represents the amount of British pound sterling it would take to exchange for one euro.

History of EURGBP

The history of the pound goes back to around 775 AD, which makes the currency, probably one of the oldest. The well documented UK colonial conquests cemented the pound’s dominance across the globe and at one time, it was the world’s primary currency, both in circulation and in reserve. But its current decimated form has its roots from 1971 when the Bretton Woods System collapsed.

As of October 2019, the GBP is the fourth most traded currency in the world, and major events that have greatly influenced its value include: the 1992 UK exit from the Exchange Rate Mechanism, the 2001 tech bubble burst and the 2016 Brexit when the UK public voted to leave the European Union.

On its part, the euro is a 20th-century currency, having been only introduced in 1999. The euro operated as an ‘invisible’ currency in its first three years, used only as electronic money and for accounting purposes. Coins and notes would be first introduced in January 2002 in 12 European Union countries. The euro is now used in 19 out of the 28 EU countries. The major events that have influenced the value of the euro include the 2008 Eurozone recession and the 2015 €1 trillion Quantitative Easing program launched by the European Central Bank (ECB).

EURGBP Price History

The closeness between the two economies has allowed the EURGBP pair to retail a relatively stable and less choppy price action over the years. Still, the major political and economic events have always triggered significant price movement on the pair. The EURGBP printed its all-time low of 0.5851 in October 2000, during the tech bubble crash.

It drifted higher afterwards and achieved its all-time high of 0.9580 in December 2008 during the Great Recession. It then tumbled to lows of circa 0.6900 by July 2015 before the 2016 Brexit-inspired rally drove it to circa 0.9350.

Why Trade EURGBP

• Price stability

The EURGBP is a relatively more stable currency pair, which means that its price action is fairly smooth and more predictable. This does not necessarily mean that it does not move, because its constituent currencies are among the top 8 in the world. Still, the pair is less choppy, which means that traders can employ aggressive trading methods, such as higher stake amounts, when trading the EURGBP.

Major Bodies Influencing EURGBP

European Central Bank

The ECB has a major influence on the euro, with maintaining price stability of the single currency being one of its main objectives. ECB also oversees the individual central banks of the different EU nations and sets the overall monetary policy in the Eurozone. Its monthly rate releases are watched closely by euro traders, including any involvement in the bond market, such as its QE (Quantitative Easing) programs.

Bank of England

Like the ECB, the BoE releases rates and rate statements every month. BoE has also earned a reputation as one of the most active and efficient Central Banks the world over, and its actions have a great impact on the EURGBP rate.

UK Parliament

Major GBP price changes have been triggered by decisions and sometimes by political headlines coming from the UK parliament. It is important to track decisions and discussions that have an impact on the overall UK economy as they are likely to have a significant impact on the EURGBP rate.

UK Office of National Statistics (ONS)

The ONS is responsible for producing and publishing important data that can be utilised for both social and economic policy formulation. For EURGBP traders, it is prudent to track the releases of economic data, such as GDP numbers, as well as labour market statistics, such as the unemployment rate and wage growth figures.

For euro-based economic statistics, its key figure comes from Germany because the country as of October 2019 remained the largest economy in the region.

EURGBP Correlations

The EURGBP pair has a positive correlation with the USDSGD, CHFSGD and EURMXN. A positive correlation means that the prices of the EURGBP and the correlated assets will tend to move in the same direction. The EURGBP also has a negative correlation with the GBPCHF, GBPJPY and GBPNZD. A negative correlation implies that when EURGBP trends higher, the other assets will tend to go lower, and vice versa.

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