EUR/GBP - Euro to British pound

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. 

Short term outlook
Bullish
Medium term outlook
Neutral

Euro daily update

The euro is up today (particularly against the US dollar), and has strengthened every day this past week. Looking at EUR/USD, the pair is now trading above the critical 1.25 level this morning. In general, the euro continues to benefit from good economic data and monetary policy tightening expectations. Yesterday, seasonally adjusted Eurozone trade balances were higher than expectations. All else held equal, higher net exports tends to strengthen the euro. Turning to politics,  Reuters is reporting that two thirds of SPD supporters back another German grand coalition according to a recent poll. 78% of conservatives also back another coalition. This is good news for Angela Merkel, especially as she has been heavily criticized for making too many concessions to the SPD. Looking at Italian elections, markets remain fairly complacent regarding the risk of a Euroskeptic party coming to power. The leading "5 Star Movement" has hinted that leaving the euro is unrealistic. Looking at election predictions, center-right parties affiliated with Silvio Berlusconi are currently leading the polls, but are unlikely to gain enough votes to form a majority government. We will upgrade our short-term outlook to bullish later today. Our medium-term outlook on the euro remains bullish. 

EUR/USD is currently up and trading above 1.2530. The euro is flat against the yen, with EUR/JPY trading above 132.660. Finally, the euro is flat against the pound, with EUR/GBP above 0.8870.

Looking at Eurozone economic data this week, we’ll see German consumer prices as well as Eurozone GDP growth and industrial production. The German harmonized index of consumer prices met expectations (1.4%). German (2.3% vs. 2.2% expected) and Eurozone (2.7%) Q4 GDP growth mostly met expectations. Eurozone industrial production was ahead of expectations (5.2% vs. 4.2% expected). Later today, we’ll see German wholesale price index figures. Last week, Eurozone composite PMIs were ahead of expectations, signaling strong future growth.

Updated 

British pound daily update

The British pound is higher today (particularly against the US dollar), and has been strengthening throughout the week. Thanks to strong regional growth and rising rate hike expectations, the British pound remains in a bullish trend. Pound sterling is also benefiting from a particularly weak US dollar, which is currently trading at 3-year lows. Compared to its key regional peers (such as the euro), the pound is relatively weaker. Unfortunately, Brexit-related risks and relatively weaker economic growth continue to weigh on GBP. Turning to the latest Brexit news, the British government is proposing "mutual recognition" as a means to preserve financial services access to the EU. According to the  Financial Times, the proposal calls for the UK and the EU to recognize each other's regulatory regimes as equivalent at the point of Brexit. Any future divergences would be monitored by an independent mechanism. The proposal is likely to be contentious, given that Michel Barnier has repeatedly ruled out access to the single market unless the UK accepts conditions including the free movement of people. Our short-term outlook on the pound is neutral, while our medium-term outlook is bullish.  

GBP/USD is currently above 1.4120. EUR/GBP is flat, with the exchange rate above 0.8870. The pound is flat against the Australian dollar and the Canadian dollar. GBP/AUD is currently above 1.7720, while GBP/CAD is above 1.7610.

Looking at UK economic data this week, traders will be watching upcoming inflation and retail sales figures. The consumer price index (3% vs. 2.9% expected) was ahead of expectations. The retail price index (4% vs. 4.1% expected) were slightly below estimates while the producer price index (4.7% vs. 4.2% expected) was ahead of expectations. Later today, we'll see retail sales growth. Expectations remain low, given recent weakness in UK consumer spending. Last week, the Bank of England signaled a positive economic outlook while Markit/CIPS services PMIs were below expectations. 

Updated 

Euro to British pound Outlook

Short term outlook
Bullish

As the pair strengthens, we are upgrading EUR/GBP to bullish. The pair is currently trading within normal conditions. This is based on technical indicators on a daily chart. 

Medium term outlook
Neutral

As EUR/GBP runs out of steam, we are upgrading the pair in the medium-term to neutral. The currency pair is now trading within normal trading conditions. This is based on technical indicators when looking at a weekly chart. 

Updated 

Euro analysis

Euro has room to keep rising: COT Report

Looking at this week’s Commitments of Traders report, bullish extremes continue in the euro, British pound and crude oil. Looking at net speculator positions as a proportion of open interest, long crude oil positions are the most at risk. While euro and British pound net positions are elevated relative to historical averages, open interest has also grown over time. Thus neither currency look exte…

Published 
Tags: Euro

EUR/JPY: An “easy” long idea gets trickier

In early 2017, doubts regarding the integrity of the Eurozone led many to take refuge in the Japanese yen. Unlike the euro, the Japanese yen exhibits classic safe haven characteristics and tends to strengthen during downturns. Following the Brexit referendum vote and US presidential elections, few were willing to bet on opinion polls that predicted Macron’s victory. Similar to political events in…

Published 

‘Euroboom’ becomes the consensus favorite: COT Report

Looking at this week’s COT report, the British pound is now at a bullish extreme, while the Australian dollar is no longer at a bearish extreme. Bullish extremes continue in long euro and long crude oil speculator net positions. The purpose of this report is to track how the consensus is positioned across various currencies and commodities. When net long positions become crowded in either direct…

Published 

British pound analysis

Pound sterling: Brexit jitters dampen the rally

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…

Published 

British pound still looks like a good deal

In our last take on the British pound in early January, we wrote that the currency was set to keep strengthening thanks to strong regional growth, moderate sentiment and the historically low value of the pound. More specifically, the currency looks cheap based on broad nominal effective exchange rates (a measure of the pound relative to other foreign currencies). Looking at GBP/USD since our last…

Published 

‘Euroboom’ becomes the consensus favorite: COT Report

Looking at this week’s COT report, the British pound is now at a bullish extreme, while the Australian dollar is no longer at a bearish extreme. Bullish extremes continue in long euro and long crude oil speculator net positions. The purpose of this report is to track how the consensus is positioned across various currencies and commodities. When net long positions become crowded in either direct…

Published 

Economic calendar

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Euro to British pound History

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:

12-26-2017 EZ UK GDP
Source: The World Bank, annual GDP growth

 

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.

 

2017

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.