What Is The EUR/GBP Currency Pair?
EUR/GBP is the symbol that indicates the pair made up of Euros and Pounds as they are traded on the international currency market. In this case, the Euro is the base currency, while the Pound is defined as a listed currency. As with other pairs, the EUR / GBP exchange rate is a comparison between the two currencies. For example, if the EUR / GBP price is 0.80 it means that one Euro (EUR) is exchanged for 0.80 Pounds (80 pence). If the exchange rate goes from 0.80 to 0.90 it means that the Euro is trading higher and is therefore stronger than the pound. The Euro / Pound exchange rate is among the most popular and traded in Europe as it brings together the two largest and most important EU economies. Recently, currency speculation is aimed at the possibility that EUR / GBP will reach parity (1 to 1).
The Peculiarities of the EUR/GBP
The EUR/GBP pair is the eighth most traded currency pair on Forex and is listed with 4 decimals depending on supply and demand. Another peculiarity of this currency pair is that it can be listed in both directions. You can therefore meet the GBP/EUR pair with some brokers. The EUR/GBP pair, being little volatile, is recognized as a trend pair. This means that one can frequently observe on this pair very long upward or downward trends with few intermediate fluctuations. It is therefore advisable to analyze this value in the context of traditional trading, CFDs or Day Trading techniques that are less profitable due to the very low volatility. Historically the EUR/GBP pair has evolved into a fluctuation band between 0.5673 and 0.9800. If the central bank connected to the Euro is already known, the ECB, we must know that the one connected to the Pound Sterling is the Bank of England and that its abbreviation is BoE. It is therefore important to follow all the news and communications of these two financial bodies to assess current trends and those to come on EUR/GBP.
Which Organizations Set EUR/GBP Rate?
Among the elements that most influence investor’s interest in certain currencies in relation to others and therefore the upward or downward trend in currency pairs, there are obviously the interest rates set by central banks. The large central banks are the bodies in charge of setting currency interest rates. For the euro it is obviously the European Central Bank that determines and evolves this rate. As regards the pound sterling, its interest rate is set by the Bank of England, central bank of Great Britain. These rates and their developments are published every week on the economic calendar.
Why Rates Affect Its Rate
The currency interest rates are undoubtedly the most influential elements on the Forex market because on their own they determine the attractiveness that a currency can have regardless of external factors or the evolution of the pair course prices to which it belongs. The higher the interest rate of a currency is, in fact, the higher the profits are when it is resold against another currency. It is therefore essential to compare the interest rates of the euro and the pound sterling when you take a position and when you close it. The Importance of Supports and Resistances in The EUR/GBP Analysis Since the EUR/GBP pair is very volatile, traders who speculate on this value take into account the phenomena of support and resistance observed in the real-time graphs. Technical analysis therefore maintains a fundamental function in deducing future trends and we must be ready to act at the right moment according to these different psychological thresholds. Obviously the ideal is to couple the information coming from the fundamental analysis and those coming from the technical analysis to have a concrete vision of the market.
How to Analyze the Euro (EUR)?
Let’s take a closer look at each of these two currencies now, discovering how to analyze them. As for the euro, as seen above it is the official currency of the Euro zone that is part of the European Union. It is also the second most traded currency in the world, after the US dollar, with about 33.4% of trades. The interest of traders in the euro is explained by the importance of this currency in international trade. The quotation of the euro is closely related to world economic cycles. When world growth is positive, investors are more inclined to take risks, and that profits the euro, while when a global economic crisis occurs risks are avoided and the euro tends to lose value. It can therefore be said that the euro is a value at risk rather than a safe haven value.
In the past, various crises and events have strongly influenced the quotation of the euro, such as the exit from the subprime crisis in 2009, which initiated a positive correlation between the euro and the pound, which lasted until 2013, and a similar event occurred for a few months in 2015. During the subprime crisis, the quotation of the euro remained at relatively correct levels despite a strong aversion to the risk of the markets and this occurred due to the simultaneous collapse of the US dollar. However, it is usually the crises within the euro zone that weigh on the quotation of this currency. It is also possible to analyze changes in the euro’s price in relation to the European economy in general. It can be said that the data of European economic growth do not have a really important effect on this currency. Ultimately, to deal with the euro effectively it is first of all necessary to rely on Eurozone crises that often lead to a sharp fall in the quotation. This is due to the fact that the euro is a young currency that does not yet fully reassure traders in the long run. Risk aversion is in fact the most influential factor as regards the positions taken on the euro, while the growth of the Euro zone has very little effect. The euro is therefore very similar to the pound (GPB) in the sense that it is a very volatile currency and considered at risk.
How to Analyze Pound Sterling (GBP)?
Let us now turn to the way of dealing with the quotation of the pound sterling or GPB. The pound sterling is the official currency of the United Kingdom as well as the fourth most traded currency on the foreign exchange market with around 12% trading. The importance given to the pound sterling comes from the fact that the City is a leading global financial center. Similarly, to the euro, the pound sterling is particularly sensitive to risk aversion and therefore depends on world economic cycles. This currency therefore has a tendency to appreciate when the economy is in good health and to fall in the event of a crisis. Depending on the period, the price of sterling may show a positive or negative correlation with other risk currencies such as the euro. It can therefore be said that the GPB is more sensitive to the risk aversion of the euro. Among the other factors to be taken into consideration when dealing with the pound sterling is obviously the British economy.
The growth of this country is very variable with numerous peaks and therefore a strong volatility. The periods of crisis and growth of the British economy can therefore be easily used as a fundamental indicator. It is therefore possible to analyze the pound sterling using essentially the perception of the level of risk by investors on the financial markets as this currency is particularly sensitive to risk aversion, in general with a rise in its price in the event of strong aversion to the risk and a fall in the case of low risk aversion. Risk aversion depends, for its part, mainly on economic growth in the world and is therefore easy to predict. The evolution of the economic situation in the United Kingdom, which is sensitive to economic cycles and also has a strong influence on the currency, will also be carefully monitored. GPB is considered as a growth asset and is therefore very sensitive to these fundamental data. Ultimately, a growth of the British economy in a period of crisis will be the best signal of a downward trend in the EUR/GPB while a crisis affecting the entire European Union and Great Britain will be rather favorable to this pair rate of currencies with a stabilization of the euro and a fall in the pound sterling.
Tips for Trading EUR/GBP
As with many parities, the EUR/GBP is very sensitive to numerous external factors. At first, the announcement effects are certainly the most impacting on short-term values. To be sure not to miss out on important communications, be careful to consult the economic calendar daily, especially in the morning between 10 am and 11 am for news concerning the pound sterling and before 2.30 pm for what concerns the euro. The most important signals to follow are, in order, the GDP of each of these areas, the income and expenditure of capital, monetary policies, inflation and, globally, the set of political and economic events that may have a psychological effect on investors and push them to buy or sell their positions.
Don’t forget to take into account the exchange rate of each of these currencies with other major international currencies. It is known, for example, that when the Euro or the pound sterling loses value against the US dollar, this favors their competitiveness in exports and, in the medium term, allows the economy to be re-launched and thus to increase the upward trend again.
Where and How to Invest in EUR/GPB?
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