EUR/GBP, or euro to British pound, is one of the most heavily traded minor currency pairs in foreign exchange. While the pair does not rank among the most heavily traded pairs (these are known as major pairs), the exchange rate is closely monitored in Europe. This is because of the close trading relationship between the UK and the Eurozone. In general, both currencies tend to appreciate during economic booms and weaken during downturns. Thus overall volatility in EUR/GBP tends to be fairly limited.
The euro is currently strengthening against all major currencies. The common currency is the strongest against the Japanese yen and the US dollar. Yesterday, the euro rebounded against the US dollar after finding buyers at the low end of our daily trading range (1.1510). The euro continues to strengthen today. Today's EUR/USD trading range remains 1.1510 - 1.1680.
Beyond finding buyers at recent lows, the euro is making gains today thanks to improving sentiment figures. While German manufacturing PMIs (a measure of sentiment) fell relative to previous monthly figures, composite PMIs were better than expected. This suggests that the outlook for the services sector is improving. A similar pattern can be seen in French PMI data. PMIs and other sentiment figures are a good forward-looking indicator, and tend to correlate well with future GDP growth figures.
Given the Eurozone's manufacturing and export-oriented economy, manufacturing PMIs tend to have a bigger influence on the currency. Between decelerating global growth and rising trade tensions, the outlook for Eurozone manufacturing is declining. German auto manufacturer stocks suffered significant declines yesterday after Daimler AG (the parent company of Mercedes Benz) issued a profit warning. While better-than-expected Eurozone services sentiment is welcome news for euro bulls, the ongoing deterioration in the more important manufacturing sector is a significant issue. Later today, we'll see manufacturing PMIs for the broader Eurozone. Our outlook on the euro remains bearish.
EUR/USD is up and trading above 1.1650. The euro is up against the yen, with EUR/JPY trading above 128.30. Finally, the euro is up slightly against the pound, with EUR/GBP above 0.8760.
|June 18||ECB President Draghi Speech|
|June 19||ECB President Draghi Speech|
|June 19||ECB Praet Speech|
|June 19||Eurozone Current Account S.A. APR||€28.4b||€32.0b|
|June 20||Germany PPI YoY MAY||2.7%||2%|
|June 20||ECB Lautenschläger Speech|
|June 20||ECB Cœuré Speech|
|June 20||ECB President Draghi Speech|
|June 21||France Business Confidence JUN||110||110|
|June 21||Eurozone Consumer Confidence Flash JUN||-0.5||0.2|
|June 22||Germany Markit Composite PMI Flash JUN||54.2||53.4|
|June 22||Germany Markit Mftg PMI Flash JUN||55.9||56.9|
|June 22||France GDP Growth Rate QoQ Final Q1||0.2%||0.7%|
|June 22||Eurozone Markit Composite PMI Flash JUN||54.1|
|June 22||Eurozone Markit Mftg PMI Flash JUN||55.5|
Pound sterling is moving up today against all major currencies except the euro and the Australian dollar. Yesterday, the pound reversed course after the Bank of England's chief economist unexpectedly signaled his support for a rate hike. The British pound/US dollar pair found buyers just below the low end of yesterday's daily trading range (1.310). Today's GBP/USD trading range is 1.310 - 1.3470. After moving up for the last two trading sessions, the pound is no longer looking oversold.
Looking at the Bank of England's decision more closely, the BoE held rates at 0.50% yesterday and maintained its existing policies (including quantitative easing). The big change was that BoE Chief Economist Haldane is now supportive of another rate hike. Beyond Haldane's change of heart, the institution also stated that household spending and business sentiment have improved markedly. Members of the BoE are also more confident that the slowdown seen in the first quarter is temporary. All in all, Haldane's change of stance and the BoE's upbeat statement suggest a higher likelihood of a future rate hike. Unsurprisingly, the pound rallied from oversold conditions and continues to make gains today. Looking at trading patterns, yesterday's move up was accompanied by significant trading volumes, a bullish signal in the short-term.
While positive news is helping the pound recover, the longer-term outlook for the currency is not particularly benign. Thanks to an ongoing deceleration in European growth, expect the pound to remain in a bearish trend for the foreseeable future. Those looking to short the currency may consider entering the trade towards the top-end of our daily trading range. Our outlook on the pound remains bearish.
GBP/USD is currently above 1.330. EUR/GBP is up slightly, with the exchange rate above 0.8760. The pound is down slightly against the Australian dollar and up against the Canadian dollar. GBP/AUD is currently above 1.7910, while GBP/CAD is above 1.7670. GBP/JPY is up, and currently trading above 146.60.
|June 18||Rightmove House Price Index YoY JUN||1.6%||1.1%|
|June 21||Public Sector Net Borrowing MAY||-£3.36b||-£5.27b|
|June 21||BoE Interest Rate Decision||0.5%||0.5%|
|June 21||BoE Quantitative Easing||£435b||£435b|
|June 21||BoE MPC Vote Hike||3/9||2/9|
|June 21||BoE MPC Vote Cut||0/9||0/9|
|June 21||BoE MPC Vote Unchanged||6/9||7/9|
|June 21||BoE Gov Carney Speech|
|June 22||BoE Quarterly Bulletin|
Earlier today, we downgraded our euro outlook to neutral in the medium-term, and bearish in the short-term. As the euro runs out of momentum, the trend is now neutral based on quantitative factors such as price, trading volumes and volatility. While forward-looking economic indicators continue to suggest an ongoing expansion, growth appears to be slowing in rate-of-change terms. This is why our p…
In our previous take on the euro in late February, we wrote that the bullish case for the currency was looking increasingly challenging. At the time, euro speculators were spooked by slowing forward-looking economic indicators, while upcoming political events in Italy and Germany risked the future unity of the region. While our outlook remains mildly bullish, this comes with the significant cavea…
Improving growth and falling political risk are pushing the Euro higher, but constant changes in the landscape put this movement at risk. Significant declining trends will impact the euro forecast - and speculators and traders should take note of the increased risk.
In our previous analysis on the pound, we claimed that the number of catalysts driving the currency’s bullish trend were running out. At the time, we warned that the rally was running out of momentum, but did not see any evidence that would suggest adopting a bearish stance. Following recent weakness in the British pound, we downgraded our longer-term outlook on the currency to bearish on April 2…
The outlook for the pound, while still bullish, is looking less optimistic today. More specifically, factors including the ongoing slowdown in regional growth, lower expectations for a May rate hike, and significant speculator interest in the currency are hampering the rally. Following Brexit, the trade-weighted value of pound sterling (a measure of GBP relative to other currencies) hit an all-t…
Looking at the British pound today, concerns regarding Brexit and the stock market rout are outweighing the Bank of England’s positive economic outlook. As a currency that benefits from rising risk appetite, pound sterling has been selling off sharply in February thanks to fears regarding elevated asset prices. While Bank of England Governor Mark Carney helped the pound last Thursday after saying…
Significance of the EUR/GBP pair
Given the close economic relationship between the United Kingdom and the Eurozone, euro to British pound is the most important minor currency pair in foreign exchange. While EUR/GBP is not among the most heavily traded currency pairs in the world (i.e. the major currency pairs), it is nonetheless of special significance for businesses and individuals based in the Eurozone and the United Kingdom.
The euro is the world’s second-most traded currency while the pound is the fourth-most traded currency. The euro tends to gradually strengthen during global economic booms, while selling off during downturns. Movements in the pound are more closely related to the performance of the underlying economy of the United Kingdom. Relative GDP growth rates for the Eurozone and the United Kingdom are shown below:
2003 – Late 2007: pre-financial crisis calm
In the years leading up to the financial crisis, both the British pound and the euro traded in a narrow channel. While the value of both currencies fluctuated quite a bit during this time (especially against the US dollar), they remained fairly close to each other. Looking at EUR/GBP, the pair traded between 0.72 and 0.65 during this time.
Both began appreciating in 2003, as GDP growth accelerated following the technology and telecom stock market bubble in 2000. When growth in the Eurozone began decelerating in 2005, thanks to growing unemployment and government deficits, the British pound weakened alongside the common currency. The euro to British pound exchange rate was thus fairly stable. In 2006, both currencies began broadly rallying as investors grew wary of slowing US growth. Eurozone and the British GDP growth also resumed accelerating during this time. In general, this was a golden era for both currencies and optimism for European growth was high.
Late 2007 – 2009: the global financial crisis
Starting in September 2007, EUR/GBP began a steep ascent from around 0.68. The pair made its long term top around 0.96 at the end of 2008. Looking more deeply at each currency, the British pound began selling off in late 2007 as issues in the US housing market appeared to be worsening. Given London’s status as a leading global financial center (and the British banking sector’s heavy exposure to US dollar liabilities), fears of contagion resulted in a weaker pound. The euro, on the other hand, began sharply appreciating (against both the pound and the US dollar) as markets initially considered the currency to be a safe haven from problems in the US.
Starting from July 2008, both the pound and the euro began selling off sharply against the US dollar. As the pound was relatively weaker, EUR/GBP kept climbing until the end of 2008. As we have written in the past, the US housing crisis of 2007 morphed into a global crisis by 2008 thanks to the significant US dollar liabilities of global banks. After Eurodollar lenders began doubting the creditworthiness of borrowers in 2008, fears grew that many banks would be unable to rollover their significant US dollar liabilities. At the time, many global banks were heavily reliant on US dollars borrowed from the Eurodollar market.
2010 – Mid-2012: The Eurozone crisis
Following the first stage of the global financial crisis, problems began appearing in the Eurozone. In late 2009, reports in the media suggested that the Greek government’s finances were much worse than initially imagined. Similar stories appeared regarding governments in Portugal, Ireland and Spain. As the largest holders of Eurozone government debt were German and French banks, fears grew that problems in the Eurozone’s periphery may cause a broader financial crisis. Despite several bailouts from the European Central Bank, the common currency began selling off.
This time the British pound served as a safe haven to the Eurozone’s troubles, and rallied in response. EUR/GBP fell from around 0.96 to 0.78 by mid-2012.
Mid-2012 – 2014: Whatever it takes
Following a few years of economic turbulence, the ECB was willing to consider unorthodox means to bring about stability to the region. In a conference in July 2012, ECB President Mario Draghi famously remarked that the ECB will do “whatever it takes” to save the euro. Following his speech, the Bank began a new program known as Outright Monetary Transactions (OMT). Under OMT, the Bank would have the power to purchase an unlimited amount of Eurozone government bonds. Following the announcement, Eurozone bonds began rallying and the crisis slowly dissipated.
Looking at the EUR/GBP exchange rate, it peaked around 0.87 in early 2013 and traded just above 0.84 in early 2014.
Early 2014 – late 2015: The US dollar comeback
After Draghi’s “whatever it takes” speech, it became clear that the ECB was willing to go to extreme lengths in order to maintain the Eurozone monetary union. In May 2014, the Bank began pursuing negative interest rates and quantitative easing (buying government and corporate bonds using the ECB’s balance sheet). Following this monetary ‘bazooka’, the euro began a steep sell-off. As the US was tapering its own quantitative easing program at this point, the US dollar soared relative to the euro.
Looking at EUR/GBP, the exchange rate fell from around 0.84 down to around 0.70 by late 2015. While the pound was broadly weaker during this time, the currency made gains against the euro.
Late 2015 – 2016
After making a long-term bottom around 0.70, the euro began gaining against the British pound by 2016. At the time, the common currency was gradually strengthening while the pound was selling off due to Brexit referendum fears. Following the referendum, in which the United Kingdom voted to leave the European Union, the pound sold off sharply. Looking at EUR/GBP, the pair peaked around 0.92 in early October 2016, but quickly gave up its gains.
In early 2017, markets were once again nervous regarding European politics. This time, the fear was that France’s Marine Le Pen may win the French presidential elections. Given her anti-European Union stance, many feared that the Eurozone as a whole may collapse if France were the leave the European Union. As such, EUR/GBP began selling off and bottomed around 0.84 prior to the elections in April.
Following the victory of Emmanuel Macron, who was seen as pro-European Union, the euro began rallying. For EUR/GBP, the pair once again hit its previous top around 0.92 in August 2017. Since then, the pair has weakened as the British pound has rebounded thanks to rising optimism for a trade deal. As both currencies have been driven by politics in 2017, we have written that trading EUR/GBP has been challenging given the difficult in forecasting politics. At times, we have also written that optimism in the pound has been quite stretched, as hopes for a deal have run ahead of expectations.