EURGBP or EUR/GBP is the notation for the currency pair composed of the euro and the British pound. It is one of the more popular crosses. The value represents how many pounds (the quote currency) are needed to buy one euro (the base currency).
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What Makes this Pair Different?
The pair tends to remain largely flat, with bursts of volatility during key trading hours. This general sideways trading is ideal for swing traders and scalpers. It’s rarely very active outside of the European trading window, but during those times it can accumulate wide swings, and there is an opportunity for traders to collect a lot of pips.
Another popular reason for trading the pair is to derisk from the dollar when trading either the pound, the euro, or both. Since those are the three most traded currencies in the world, the EURGBP is the most popular hedging cross.
General Characteristics
The pair represents the two largest economies in Europe (and, the largest and sixth largest in the world). The economies are also each other’s main trading partners. That being said, there is some debate on the exact trade statistics between the UK and the eurozone due to routing and customs practices. This means the cross maintains healthy liquidity in most conditions.
Two factors lead to the unusual behavior of the currency pair. The first, is the trade and economic integration between the UK and the euro area. This causes both to be affected by economic situations similarly. Thus, economic pressures will push on both of the currencies somewhat equally.
The second factor is arbitrage. If either of the currencies were to move out of sync, traders taking advantage of the disparity will immediately bring them back in line.
Because the relative value of each currency moves in tandem, the chart stays mostly flat. However, when there is something that could cause a difference in economic outlook between the two, this can drive significant volatility in the pair. This is because arbitrage now works in the opposite direction.
Trading the Pair
As mentioned, this pair tends to be very sensitive to differences in economic outlook between the UK and the eurozone, The largest of these would be a separation in the outlook held by their respective central banks.
The ECB meets every first Thursday of the month to set monetary policy. The BOE announces it’s monetary policy decisions 45 minutes before its European counterpart. This is usually where you can get a lot of volatility in the pair, especially around the press conference of the ECB president.
Other sources of volatility are general economic releases that show a divergence in the economies, such as CPI, PPI, wages, GDP and others. Because the pair tends to trade sideways, the effects of economic data releases seem to be exaggerated.
While EURGBP is a great pair for traders who are interested in a relatively calm environment, keeping an eye on economic releases is essential. You can do that with the handy economic calendar available on the Orbex website;. Plus, it’s always a good idea to stay on top of what’s going on in the pound and euro with Orbex’s daily supply of trading tips.
