The EUR/GBP pair is not a major currency pair, but is a currency cross of the Euro and the British Pound. Both are two of the major European currencies, which means that liquidity, or the amount of investors buying and selling the EUR/GBP, is fairly strong.
As such, the average spread retail traders typically pay on trading one standard lot EUR/GBP is 2.3-2.7-pips, and this spread is lowest during the European trading hours, from 07:00 GMT to 16:00 GMT.
Outside of European trading hours, the spread retail traders pay to trade one standard lot of EUR/GBP tends to rise, especially from 20:00 GMT to 06:00 GMT.
Factors Influencing the EURGBP Pair
Like any other currency cross, the most important factors that determine the EUR/GBP’s price are the local interest rates in each economy. The Bank of England decides the U.K. interest rates typically on the first Thursday of every month. Likewise, the European Central Bank decides interest rates across the seventeen member common market that uses the Euro. A decision to cut interest rates or increase accommodative monetary measures has historically been negative for the local currency. For example, if the European Central Bank cuts its key interest rate, the EUR/GBP is likely to depreciate; if the European Central Bank raises its key interest rate, the EUR/GBP is likely to appreciate.
The basis for the monetary policy decisions and therefore also an important factor for the pair’s price is each economy’s output, or gross domestic product (GDP). Inflation levels are also important factors for the central banks when making rate decisions and consumer price Index (CPI) results will therefore strongly affect trading. A higher GDP or higher inflation rate both suggest no monetary action or possibly even raising interest rates, and are therefore currency positive.
The Euro-zone crisis has also proved to be a driver of each central bank’s respective decisions. In June, the Bank of England announced new liquidity measures, coincidentally ahead of the second round of the Greek parliamentary elections; and the European Central Bank has been mulling a major bond-buying program to help calm financial tensions. Both would be forms of balance sheet expansion, which would hurt their local currencies.
Additionally, other releases that affect trading are indicators that tell of the health of the economy. Higher retail sales and a low unemployment rate, mean a strong economy. The U.K. Production Managers’ Index will indicate future GDP reports.
The producer price index will also give clues to inflation changes, but are not as definitive as the CPI. German data tends to drive the Euro, as Germany is Europe’s largest economy. More recently, growth and labor market data out of Italy and Spain has proven important as those countries faces a worsening debt crisis.
Both economies are in Europe and as already suggested, are therefore very sensitive to the European sovereign debt crisis. The Sterling is considered a safe haven currency when compared to the Euro, but will trade as a risky currency when compared to other safe havens like the U.S. Dollar or the Yen.
Analyzing EUR/GBP Charts
On the EUR/GBP weekly chart, the pair has been falling for the better part of the past four years, with the pair peaking just above 0.9800 in late 2008. Over the past year, the pair has dropped sharply in a descending channel, one that continues to hold today despite the rally that has taken place over the past five weeks.
Assuming there is no grand solution out of the Euro-zone, and that the Bank of England does not implement a massive balance sheet expansion program, the EUR/GBP is likely to remain within its descending channel as seen on the weekly chart above. Accordingly, price is likely to trade near 0.7510 by March 1, with a broader range of 0.7385-0.7635.
Trading EURGBP – Summary
- Typical Spreads on EURGBP: 2.3 – 2.7 Pips (During trading hours)
- Most active: During London Session (0700GMT to 1600GMT)
- Widening Spreads between: 20:00 GMT to 06:00 GMT
- Preferred Brokers: HotForex (0.8 Pips) | Pepperstone (1 – 2.4 pips1/0.1 – 1.5 pips2) | LMAX Exchange (0.1-0.6 Pips)
1Pepperstone Standard Account
2Pepperstone Razor Account