What is EUR/GBP?
EUR/GBP is the currency pair that represents the exchange rate between two widely traded forex pairs: the euro and the British pound. It represents how many British pounds are needed to purchase one euro. For example, if the EUR/GBP exchange rate is 0.85, it means that 1 euro is equivalent to 0.85 British pounds.
Both the British pound and the euro are primary reserve currencies alongside the US dollar. This means that central banks and international institutions hold significant amounts of pound sterling and euro as part of their foreign exchange reserves.
Being one of the largest economies in the world, the GBP plays a crucial role in facilitating international trade and investment activities. Moreover, the UK has a reputation for maintaining a relatively stable economy and prudent monetary policy, with the Bank of England seen as the gatekeeper of financial stability. This perception could enhance the attractiveness of the pound among investors and traders.
Like the UK, the eurozone is also a major player in global trade and commerce and is known for its relative financial stability, making EUR/GBP one of the most interesting pairs. The economic strength of countries like Germany, France, and Italy contributes to the global demand and popularity of the euro.
What affects the price of the EUR/GBP pair?
The exchange rate of EUR/GBP could be influenced by a variety of financial and geopolitical factors, such as elections in the eurozone and the UK, Brexit-related news, monetary policy decisions, and tensions between countries within Europe. The prices could be influenced by:
- Macroeconomic indicators: Economic factors such as interest rates, inflation rates, Gross Domestic Product (GDP) growth, and unemployment rates in both the eurozone and the United Kingdom can significantly impact the exchange rate. Higher interest rates tend to attract foreign investors and strengthen the currency, while higher inflation rates can weaken it.
- Trade balance: The balance of trade between the eurozone and the United Kingdom, including the value of imports and exports, can impact the exchange rate. A country with a trade surplus (exports exceeding imports) usually sees increased demand for its currency, strengthening its value.
- Central Bank monetary policy actions: Decisions and announcements made by the European Central Bank (ECB) and the Bank of England (BoE) can influence the EURGBP exchange rate. Also, divergences in monetary policy between the two central banks can lead to currency fluctuations.
- Geopolitical political stability: Political stability and uncertainty can impact the value of currencies. Events such as elections, referendums, changes in government, or geopolitical tensions can lead to fluctuations in the exchange rate. Investors tend to prefer stable political environments, and any instability can cause currency volatility.
What to watch out for when trading EUR/GBP?
When trading the EURGBP forex pair (the euro against the British pound), there are several factors to watch out for. Here are some key financial announcements:
- European Central Bank (ECB) monetary policy announcements, such as increases in interest rates
- Bank of England (BoE) report on inflation, interest rate increases, and monetary policy announcements
- Eurozone and UK Consumer Price Index (CPI) growth
- UK and eurozone’s Manufacturing Purchasing Managers Index (PMI)
- GDP growth in the UK and the eurozone
- Eurozone and UK Trade Balance
- UK Unemployment Rate and eurozone Unemployment