The GBP/EUR is one of the most popular currency pairings available for trade on the forex market. Both the British pound (GBP) and euro (EUR) are considered to be "majors," meaning that each ranks as one of the top eight most frequently traded currencies in the world. In terms of average daily forex volume, the euro is second only to the United States dollar (USD), with a market share of 39.1%. The pound is traded in a somewhat lighter capacity, ranking fourth with a 12.9% market share.
The euro was instituted as the official currency of the European Union (EU) on January 1, 1999. Upon its introduction, the euro was adopted by 11 member states of the EU with the exception of the United Kingdom (U.K.). The GBP/EUR's market value is largely dictated by traditional financial forces. Due to the economic diversity of both nations, the EUR and GBP are not overtly correlated to the commodity markets. This is a direct contrast to commodity currencies such as the Canadian dollar (CAD) or New Zealand dollar (NZD), which are dependent upon crude oil and agriculture market pricing.
Over the course of its membership to the EU, the U.K. has preserved the pound as its national currency. The cross of the GBP/EUR is unique in that it pairs one of the world's oldest functional currencies (GBP) with one of the world's youngest (EUR). Upon the euro's official launch in 1999, the exchange rate of the GBP/EUR was listed as 1.4200, or €1.42=£1.00.
Initially, the euro was perceived as a major step forward and drew the designation as the world's next reserve currency. However, for the year ending December 31, 2000, the euro lost momentum and the GBP/EUR realised an all-time high rate of 1.7510. During the entire lifespan of the euro (the years 1999-2016), the GBP/EUR has traded from a high of 1.7510 established in 2000 to the low of 1.0219 realised in late 2008. This range represents a 71.34% aggregate fluctuation in market value and a -15.97% adjustment in pricing.
As indicated above, the very nature of the U.K./E.U. relationship has proven historically challenging. Since its 1999 inception, the GBP/EUR has gone through several periods of prolonged volatility.
One of the most active times occurred during the 2020 coronavirus pandemic. As the strife began in late-February 2020, the GBP/EUR exhibited extreme sensitivity to an unprecedented COVID-19 global economic lockdown, various regional quarantines and travel bans. The forex sessions of 9-14 March 2020 brought an epic trading week range of 507 pips (-4.39%)―one of the largest five-day trading ranges in years. Subsequently, GBP/EUR exchange rates plummeted to a weekly close of 1.1051, well beneath the pair's 200-week simple moving average.
In response to the chaos of March 2020, a multitude of institutional investors turned to recovery funds as a means of promoting long-term equities market growth. In the U.K., various recovery fund entities were formed with the aim of investing capital into temporarily undervalued securities. The funds were priced in terms of the GBP and aspired to achieving above-average returns. Common investment targets were conventional equities holdings, not more exotic assets such as cryptocurrencies.
Unfortunately for the world's developed and emerging economies, late-2020 brought a surge or "second wave" of coronavirus cases. The outbreak appeared in earnest during November 2020, driving extreme numbers of cases and hospitalisations. To combat the spike in new coronavirus cases, U.K. health officials began distributing a fledgling Pfizer-BioNTech COVID-19 vaccine to at-risk individuals on 8 December 2020. US stock market participants looked favorably on the vaccine, as indicated by a steep rally posted by the biotech sector of the Nasdaq. In fact, from 2 December to 8 December, the Nasdaq Biotechnology Index (NBI) rallied by 165.25 points, a gain of 3.6%.
GBP/EUR: Economic And Political Relationships
Primarily, the exchange rate volatility between the pound and the euro is deeply rooted in the UK/EU economic and political relationships. As is the case with most global economic powers, the UK is greatly reliant upon the importing and exporting sectors of its economy. For the year ending 2014, the UK ranked ninth globally in exports and fifth in imports. Trade with its EU partners represents a majority of the revenue generated in these sectors. EU members Germany, the Netherlands and France are three of the U.K.'s top four trade partners.
Politically, the U.K.'s relationship with the EU is complex. On June 23, 2016, the UK voted on a referendum known as "Brexit." A vote of "leave" was recognised as the result of the referendum, effectively terminating the U.K.'s membership to the EU; one that had stood since 1973.
In the wake of Brexit, questions surrounding the U.K.'s future created havoc upon the GBP/EUR pair. Concerns over the U.K.'s trade balance, potential European capital investiture and political relations with EU member nations contributed to a massive devaluation of the pound.
Trading volumes spiked amid June 23 and 24, 2016, producing a high of 1.3147 and a low of 1.2030 for the GBP/EUR. The day's trading range of over 10 cents was the product of extreme volatility. Additionally, the bottom of 1.2030 challenged the two-year low for the GBP/EUR.
As of late 2020, four-and-a-half years into the transition process, the future of Brexit remained uncertain. With the final Brexit Day being 31 December 2020, questions over U.K. fisheries, dispute resolution and economic coexistence persisted. Only time will tell what the impact of Brexit will be upon the pound's value, the GBP/EUR exchange rate and the long-term economic health of the U.K.
You can learn more about Brexit in our guide to the transition phase.
Past Performance: Past Performance is not an indicator of future results.
Key Facts GBP/EUR
British Pound Sterling (GBP)
- Currency overview: The British pound, also known as the "pound sterling" or simply as the "pound," is the fourth-most commonly traded currency on the forex market. In addition to being traded in high volumes, the pound is also the third-largest reserve currency in the world behind the United States dollar and the euro.
- Central bank: Bank of England
- Currency code: GBP
- History: The pound sterling is the world's oldest currency still in use. The first pound coinage dates back to the late 15th century, with the pound sterling's value being derived from one pound of silver. The pound sterling was originally divided into the subunits of 20 shillings, with each consisting of 12 silver pence. The system remained in use until 1971, when the pound underwent a process of decimalisation, which changed the subunit of one pound to 100 pence. The pound was pegged to the United States dollar during the WWII era, in accordance with the Bretton Woods monetary system. With the dissolution of Bretton Woods in 1971, the pound took its current form as a "floating currency."
- Economy: The U.K. is ranked number 10 globally in terms of GDP purchasing power parity, with a total output of US$2.66 trillion annually. The U.K. also ranks as the third-largest economy in Europe behind Germany and France. Key production industries that drive output are agriculture and energy production (coal, oil and natural gas). Service industries such as banking, insurance and other business services comprise a large part of GDP output.
- Currency subunits: One British pound consists of 100 "pence"
- Denominations: Bills: £5, £10, £20, £50; Coins: 1p, 2p, 5p, 10p, 20p, 50p, £1, £2, £5
- Countries and territories using the GBP: United Kingdom, Isle of Man, Channel Islands, South Georgia, South Sandwich Islands, British Antarctic Territory and Tristan da Cunha
- Currencies pegged to the GBP: Gibraltar pound, Falkland Islands pound and Saint Helena pound. All are separate, regional currencies pegged at parity with the GBP.
- The GBP/USD pairing is considered to a "major" currency pair. Other commonly traded pairings including the pound are with the Japanese yen (GBP/JPY), euro (EUR/GBP), Swiss franc (GBP/CHF) and the Australian dollar (GBP/AUD).
- Currency overview: The euro is the official currency of the European Union. It has the largest circulation among currencies in the region and serves alongside the U.S. dollar and the Japanese yen as a major world reserve currency.
- Central bank: European Central Bank
- Currency code: EUR
- History: The euro was introduced in 1999 as the official currency of the eurozone, replacing the traditional currencies of 19 nations in the region.
- Economy: The eurozone economy is the largest economy of a supra-national economic bloc in the world, with a GDP of approximately €15 trillion.
- Currency subunits: 1 cent = 1/100 of a euro
- Denominations: Bills: €5, €10, €20, €50, €100, €200 and €500; Coins: 1c, 2c, 5c, 10c, 20c, 50c, €1 and €2.
- Countries and territories using the euro: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain. Also, Andorra, Monaco, San Marino and the Vatican use the currency under an agreement with the European Union. Two other countries, Kosovo and Montenegro, have adopted the currency unilaterally without an agreement.
- Currencies pegged to the euro: Benin franc, Bosnia and Herzegovina mark, Bulgaria lev, Burkina Faso franc, Cameroon franc, Central African Republic franc, Chad franc, Denmark krone, Equatorial Guinea franc, Gabon franc, Guinea-Bissau franc, Ivory Coast franc, Mali franc, Niger franc, Republic of the Congo franc, Senegal franc and Togo franc.
This article was last updated on 11th January 2021.
Russell Shor (MSTA, CFTe, MFTA) is a Senior Market Specialist at FXCM. He joined the firm in October 2017 and has an Honours Degree in Economics from the University of South Africa and holds the coveted Certified Financial Technician and Master of Financial Technical Analysis qualifications from the International Federation…