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The EUR/GBP 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%.[15]
The EUR/GBP 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.[1]
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.).[2] The EUR/GBP'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 EUR/GBP 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 EUR/GBP was listed as 1.4200, or €1.42=£1.00.[3]
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 EUR/GBP realised an all-time high rate of 1.7510. During the entire lifespan of the euro (the years 1999-2016), the EUR/GBP 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.[4]
As indicated above, the very nature of the U.K./E.U. relationship has proven historically challenging. Since its 1999 inception, the EUR/GBP 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 EUR/GBP 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.[11] Subsequently, EUR/GBP 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.[12] 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%.[13]
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.[5] 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 EUR/GBP 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 EUR/GBP. 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 EUR/GBP.
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.[14] Only time will tell what the impact of Brexit will be upon the pound's value, the EUR/GBP 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.
Last updated on 11th January 2021.
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