In the Forex market, the euro–sterling pair is one of the “minors” and is one of the most popular among traders who trade currencies that are not against the US dollar. These currencies are considered “neighboring currencies” since both correspond to the regions of the European continent with the most economic power, which makes it a highly liquid pair, with medium volatility and an excellent asset for FX trading.
From the next markets, we will explain everything you need to know to start trading with the European pair, from the factors that affect its value to the steps you must follow to start earning money through currency trading.
By EUR/GBP
The EUR/GBP pair, or euro vs. British pound, is the forex pair that compares the value of the euro against the British currency. The price is represented by the number of British pounds it takes to buy one euro since this is the base currency of the pair. For example, if the pair is trading at £0.80, it means that to buy one euro, you have to pay £0.80.
The “quid” as this pair is also known among traders, is highly valued because of the high economic level of their countries. On one side is the United Kingdom, which is the fifth largest economy in the world, and on the other, the Eurozone, which is one of the most powerful economic blocs, with one of the largest GDPs on the planet.
One of its unique features is that this pair can be traded both ways, that is, with the euro as the base or quoted currency, you can sell euros for pounds and pounds for euros. It is popular among traders because it combines the most traded currency in the world with the fourth, giving rise to a pair with medium to low volatility, which presents long-term trends, two ideal conditions for making transactions using techniques such as scalping, swing, and for speculating with derivative products such as CFDs.
The euro in history
Compared to the pound, which is one of the world’s longest-circulating currencies, the euro is a relatively new currency. It originated in the early 90s, with the purpose of supporting the nascent European Union through a single currency, consolidated with the signing of the treaty in the Netherlands.
The euro comes to unify the nations belonging to the EU, which was created after the Second World War, with the main objectives of promoting peace and uniting the internal market, strengthening and developing migratory relations and the economy between the 27 countries. participants.
Initially, the euro operated as a virtual currency in the markets, by the time it was minted in physical form, many countries chose to maintain a double monetary circulation, until the complete transition was achieved over the years.
On January 1, 1999, the exchange rate between the euro and the pound became official. Where both the commercial exchanges between these two regions, as well as the monetary policies imposed by the European Central Bank (ECB) and the Bank of England (BoE), come to be decisive in the price of this pair.
The pound sterling in history
The pound sterling, or British pound sterling, began to be used as a form of money in the year 760. A thousand years later, when England and Scotland decided to unite to form a single country, it became the official currency of the United Kingdom, and it is currently the oldest valid currency in the world.
Being a coin that is over 300 years old, it has gone through many stages. In the beginning, they were minted by hand, they were made of silver and their value was linked or backed to gold. After World War I and World War II, it became increasingly difficult to back the currency with gold, so it was continually flowing in and out as fiat currency.
After the Bretton Woods agreement, the pound was backed by the US dollar, like the rest of the world’s currencies, and when the agreement was broken, the BoE allowed the currency to float in the market and its value to be determined by supply, demand, and macroeconomic factors. By the 1990s, the Bank of England once again considered pegging its currency to another, this time the German franc, in order to prevent devaluations, but it was quickly discarded.
By the year 2000, when European countries began to migrate to the euro, the United Kingdom chose to keep the GPB as its country’s official currency. It is now the fourth most traded in Forex.
Factors Influencing Torque Value
As we know, this pair has a particular relationship. First of all, the regions are neighboring, therefore, the events that affect the zone will impact both currencies. Not to mention that until recently both belonged to the EU.
An example of this close relationship is that 40% of UK exports are destined for the EU. However, traders often focus on interest rates and consider it one of the determining circumstances in the fluctuation of this pair.
Let’s list some of the factors to consider that directly impact the crux:
Interest rates
Interest rates are a fundamental factor in the appreciation or depreciation of a currency. When central banks announce high-interest rates, currencies become more attractive to traders, increasing their demand and thus their value. On the other hand, low rates cause the opposite effect.
In the case of the euro, the European Central Bank (ECB) is in charge of establishing interest rates, the main one being refinancing, since the liquidity of the currency depends on it. The rates are discussed by the Governing Council every 15 days and announced once a month at a press conference.
Sterling rates are announced by the Bank of England, and adjusted by members of the Monetary Policy Committee. The main rate is known as the minimum active or base rate and has a tremendous impact on the performance of the currency in the market, so both investors and traders who trade this currency are always up to date with the publications of the same
Gross domestic product
Gross Domestic Product is an index that measures the number of products and services produced by a country against domestic consumption and imports. In other words, it could be said that it is a measure of the wealth of a nation and it is published once a year.
When this index is below the projection, it can bring about a general fall of the currency in the markets. In turn, traders see an opportunity on the days the eurozone releases its GDP, as this release tends to be a trendsetter.
Unemployment
When a country is hit with a high level of unemployment, the government is forced to take measures to rectify the situation, through the generation of jobs in public works or through subsidies, all with the primary objective of encouraging consumption and preventing a downturn in the economy. However, these measures tend to force a drop in interest rates and consequently a fall in the currency.
Euro – British Pound Analysis
In order to determine the best times to trade euro-pound forex, it is necessary to have an overview of the market, the situations of the countries, and the behavior patterns of the pair. To do this, it is necessary to apply a methodology that combines fundamental and technical analysis:
- The fundamental analysis will allow studying the relationship between the macroeconomic factors that impact the price of the pair and the possible development of a trend. In the case of EUR/GBP, be aware of interest rates and aggressive or moderate interventions by Central Banks.
- Technical analysis will allow you to study through tools such as oscillators, averages, indices, waves, and other graphs, the historical behavior of the pair, in order to find an indicator to open a position that can generate profits.
In addition to these two analyses, it is recommended to include market observation during its closure, that is, on weekends. This will allow us to give a more precise idea of the current fluctuations that will occur during the following week.
trading strategies
There are many trading strategies that can work to trade with this pair, but it is important to mention that the best plan will be the one that is aligned with our investment objectives and with our personality.
The forex trader has a very particular characteristic, and that is that he seeks to obtain profits in short time frames, this can be achieved by applying intraday systems and technical analysis that allow for identifying short, but profitable trends.
Some strategies to identify trends:
- Trend strategy, using simple moving averages (SMA) and weighted (EMA). These consist of analyzing periods of fluctuations in order to obtain trend indicators.
- Price action strategy. It consists of making an observation of the historical prices to determine entry and exit points that identify the beginning of a trend or counterfeit.
- Range market strategy. It is ideal for this pair because it is usually used when there is reduced volatility. It consists of identifying the support and resistance points when the market is consolidated and closing the positions if one of these supports were to be broken.
In any strategy applied, it is important to have proper risk management, which prevents exaggerated losses or getting carried away by a streak of profits, as well as defining the capital that we can use and the levels of leverage to request.
Trading Types
The EUR/GBP pair belongs to the minors, and although it has a high trading volume, it is low when compared to other major pairs such as EUR /USD, it has slightly wider spreads and reduced volatility. To counteract this, it is recommended to use derivative products that allow you to save commission expenses generated in the spot market. The types of trading most used with this pair are:
- Forex signals. It consists of relying on the analysis of experts who, through signals, will indicate the points at which a position should be opened and closed.
- swing trading. Because it is a pair that tends to develop prolonged trends, this type of trading allows you to navigate them for as long as they last, which can range from a few days to weeks.
- Scalping. It can be applied to benefit from the small movements that manifest during the day, opening and closing multiple, but small trades. Profits are generated according to the volume traded and the trader’s record.
Where to trade the EUR/GBP pair
There are two ways to trade forex with the pound and the euro. Depending on the one we select, it will be the place where we will carry out our transactions. In the foreign exchange market, you can trade buying euros with pounds directly or through CFDs on the movements of this pair.
In the case of the former, a Forex intermediary must be used, but if what you are looking for is to take advantage of CFDs, we invite you to use our broker service at the next markets.
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conclusions
The European pair is one of the most traded in the currency market, representing the strongest economies on the planet. They are shown as an option for the trader who seeks to take advantage of medium and long-duration trends. In addition, an advantage is that its most marked fluctuations will be during European business hours, so it is more feasible to identify the moments in which it is convenient to operate.
As always, the instrument and type of trading you choose will always be the one that fits your objectives and experience. If you are a retail trader, you should study more profitable alternatives such as low commissions or leveraged products to boost your investment.
The important thing is to stay informed, study and learn to apply technical analysis, in addition to respecting the trading strategy that you design, in order to take advantage of opportunities and reduce the risk of suffering significant losses.
Forex EUR/GBP – Frequently Asked Questions
Is the British pound strengthening?
After the 2020 crisis, the progress in vaccination in the United Kingdom, and Brexit, the pound has shown an upward trend. Is the EUR the same as the GBP?
No, the EUR refers to the Euro, which is the unit currency of 17 countries of the European Union. The GBP represents the pound sterling or pound sterling, the official currency of the United KingdomWhere can I see the real-time price of the EUR/GBP?
It can be consulted with an Internet search or through the broker that is used to operate in the market.
