What is EUR/GBP forex trading?
The EUR/GBP currency pair sees the value of the Euro pitted against the value of the British pound. The Euro represents the economy of all members within the Eurozone, while the pound represents the British economy.
It is considered a minor currency pair because it lacks the liquidity of other major forex pairs, most of which involve the US dollar. As a result, the EUR/GBP tends to have wider spreads with forex brokers than major currency pairs like EUR/USD or GBP/USD.
The EUR/GBP pair was established on 1 January 1999 when the Euro was established initially as an exclusively digital currency, before banknotes and cash were distributed from 1 January 2002.
Live chart EUR/GBP
The live chart is one of the best ways to understand the relationship between the EUR/GBP currency pair. It demonstrates the value of the British pound sterling against the Euro.
When the line graph of the live chart is trending down, it means the value of the pound sterling is weakening against the Euro. When the line graph is trending upwards, the value of the pound sterling is rising against the Euro.
You can use the live charts to plot the course of the EUR/GBP currency pair over various time frames. These can be as short as the last 60 seconds to as long as the previous month or year.
Ultimately, forex traders that rely heavily on technical analysis will use EUR/GBP live charts to pinpoint areas of support and resistance.
Support lines will be price points where the chart moves significantly upwards in favour of GBP.
Resistance lines will be price points where the chart moves significantly downwards in favour of EUR. Many forex traders will trade between these short or long-term support and resistance points.
History of EUR/GBP
The history of the EUR/GBP forex pair is somewhat unique in that it brings together one of the world’s newest fiat currencies with one of the oldest.
When the Euro was officially launched on 1 January 1999, the EUR/GBP was set at approximately £0.70 to every €1. Since then, there has been a fluctuation range of over 71% in the last two decades, influenced by a string of geopolitical factors.
Factors that influence EUR/GBP
There are various factors that power the price of the EUR/GBP currency pair. Interest rates are one of the first to consider. These rates are set by the European Central Bank (ECB) for the Euro and the Bank of England for the pound.
When interest rates are cut by the ECB, this tends to have a weakening effect on the EUR/GBP, with the pound getting stronger against the Euro. It’s a similar effect when the Bank of England cuts rates in the UK, with the Euro strengthening and the live chat showing a downward trend line in favour of the Euro. Interest rates play such a crucial role because they are a barometer of an economy’s stability and inflation.
Other factors that drive the rise and fall of the EUR/GBP forex pair include economic data released on behalf of the European and British economies.
Whether it’s data on GDP, unemployment, or consumer pricing, all of which can be used to determine the relative strength of the Euro against the pound.
Politics is also a major player in the EUR/GBP market, with the recent Brexit saga creating unprecedented volatility in the EUR/GBP forex market.
Role of the Euro
Following ten years of discussions and collaboration, the Euro was formally launched on 1 January 1999. A common currency and monetary policy have long been the vision of the European Union.
Since the Euro’s expansion as a physical fiat currency in January 2002, it has improved the ability of businesses in the Eurozone to trade across borders, and thereby stabilising the overall economy of the Euro.
The stability of the Euro has also been beneficial in enabling nations within the Eurozone to support one another during economic and social crises, including the 2008 global recession and the Covid-19 pandemic.
Its long-term drawbacks are the rigidity of the Eurozone’s monetary policy. A single, overarching policy is not a good strategic fit for local economic conditions, particularly when an individual nation within the Eurozone is experiencing significant growth and requires rising interest rates to guard against inflation and overheating.
Role of the British pound
In stark contrast to the Euro, the origins of the British pound date back to the Roman age. Its name is inspired by the Latin word ‘poundus’ which means ‘weight’. The £ symbol that is synonymous with the British currency is inspired by an elaborate ‘L’ in Libra.
In Anglo-Saxon England, a pound was based on the weight of a pound of silver. More recently the British pound has been defined in value against both silver and gold. Its so-called ‘gold standard’ meant that the British government had to underpin the sterling in circulation with an equivalent amount of gold in reserve.
It is said that the GBP is now the third most widely held reserve currency in the world. This is due largely to London’s status as a global financial trading hub, and the nation’s heritage as a global economic and industrial powerhouse.
Aside from interest rates, GDP, and inflation, inward global investment in the UK is another key influencer of GBP. When capital flows rise, so too does the pound against other leading currencies like the Euro and US dollar.
Before you dive in headfirst to trading the EUR/GBP forex pair, it’s important to have a trading strategy. The last thing you want is to be positioned on the wrong side of a trend line.
EUR/GBP can be traded using multiple strategies, including short-term scalps of the price action, as well as swing trades. This is based on medium and long-term trends, which come as a result of technical and fundamental analysis – with the latter influenced by news and press releases and official economic data.
When to buy or sell EUR/GBP
Buying the EUR/GBP is a sign of confidence in the value of the pound against the Euro. Selling the EUR/GBP suggests that you believe the value of the pound will fall against the Euro.
Therefore, your EUR/GBP trading strategies should depend on economic reaction to news surrounding the UK and European economies, as well as the technical indicators that suggest momentum or resistance for the pound against the Euro.
How to trade EUR/GBP
If you are ready to trade and gain exposure to the EUR/GBP forex pair, there are plenty of forex brokers listed on our site that can offer contracts for difference (CFD) trading, enabling you to ‘short’ (sell) EUR/GBP as well as go ‘long’ (buy) with it.
Using CFD forex brokers, you never have to physically own Euros or pounds. Instead, you use these brokers to open speculative positions based on where you think the price will go.
To profit from trading EUR/GBP, you need to ensure your closing position is higher than your opening position if you plan to go long on EUR/GBP.
Alternatively, if you plan to short the EUR/GBP, your closing position must be lower than your opening position. The profit calculated is the difference between your opening and closing orders in the market.
Close your position to take a profit or cut a loss
Many forex brokers are compatible with state-of-the-art trading software like MetaTrader 4 and 5. Meanwhile, others offer their own proprietary trading software for you to use. Either way, trading software makes it easy to close positions in the EUR/GBP forex market.
You can use trading software to set take profit orders at a certain percentage, as well as stop losses to minimise your loss, should the trend go against your initial view.
Choose a broker & open an account
At FXForex.com, we’ve spent considerable time reviewing the leading forex brokers based on various criteria. Each has its own unique selling points that enable them to stand out from the competition.
If you’re looking for a reputable forex broker to start trading EUR/GBP, set some time aside to read our in-depth reviews to make the right choice.
In short, the EUR/GBP minor forex pair is still one of the most-watched currency pairs in the world of forex trading.
It’s also one of the most accessible to trade, both in terms of available brokers and available information on the British and European economies to make informed trading decisions. It’s one of the most popular minor forex pairs to trade before graduating to the more liquid major forex pairs.